Prometeia has been selected to present two working papers at the upcoming 8° Annual Policy Research Workshop “The future of stress tests in the banking sector – approaches, governance and methodologies” organized by the European Banking Authority in its new Paris premises.
This double selection confirms Prometeia's thought leadership in the stress testing field, a few months away from the 2020 exercise European banks are going to face.
The first work, "Model-based approach for scenario design: stress test severity and banks’ resiliency" (by Paolo Nicola Barbieri, Giuseppe Lusignani, Lorenzo Prosperi, Lea Zicchino), proposes a model-based approach to assess the severity of the scenarios, showing the 2018 exercise has been the most severe so far. The second contribution of the paper is an evaluation of whether the resiliency of the Italian banking sector to adverse scenarios has increased over time. To this scope, counterfactual exercises are built by recalibrating the scenarios of the 2016 and 2018 exercises so that they have the same severity of the 2014 exercise. We find that in 2018 the economy would have experienced a smaller decline in loans compared to the previous exercises. This implies that banks could afford to deleverage less, i.e. maintain a higher exposure to risk in their balance sheets. We interpret this as evidence of increased resilience.
The second work, "How severe are the EBA macroeconomic scenarios for the Italian Economy? A joint probability approach" (by Manuel Bonucchi and Michele Catalano), as well providing a general method for calculating the joint probability of observing a macroeconomic scenario, which can be applied to a wide variety of structural models.
Both working papers were admitted under the topic "Scenario design and calibration”.