Bank Stress Testing Under Different Balance Sheet Assumptions

29 Pages Posted: 24 Apr 2017

See all articles by Ramona Busch

Ramona Busch

Deutsche Bundesbank

Christian Drescher

University of Bayreuth

Christoph Memmel

Deutsche Bundesbank

Date Written: 2017

Abstract

Using unique supervisory survey data on the impact of a hypothetical interest rate shock on German banks, we analyse price and quantity effects on banks' net interest margin components under different balance sheet assumptions. In the first year, the cross-sectional variation of banks' simulated price effect is nearly eight times as large as the one of the simulated quantity effect. After five years, however, the importance of both effects converges. Large banks adjust their balance sheets more strongly than small banks, but they are impacted more strongly by the price effect. The quantity effects are explained better by a bank's current balance sheet composition, the longer the forecast horizon. The opposite holds for banks' price effect.

Keywords: stress testing, low-interest-rate environment, net interest margin, static balance sheet, dynamic balance sheet, price effect, quantity effect

JEL Classification: G11, G21

Suggested Citation

Busch, Ramona and Drescher, Christian and Memmel, Christoph, Bank Stress Testing Under Different Balance Sheet Assumptions (2017). Bundesbank Discussion Paper No. 07/2017, Available at SSRN: https://ssrn.com/abstract=2956676 or http://dx.doi.org/10.2139/ssrn.2956676

Ramona Busch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Christian Drescher

University of Bayreuth ( email )

Universitätsstraße 30
Bayreuth, DE Bayern 95447
Germany

Christoph Memmel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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