Banking stress tests need more robust methods – Bundesbank paper
Current methodologies suffer from significant uncertainty, researchers say
The methods used in banking stress tests create significant uncertainty about possible defaults, a discussion paper published by the Deutsche Bundesbank finds.
In On a quest for robustness: about model risk, randomness and discretion in credit risk stress tests, Thomas Siemsen and Johannes Vilsmeier present the results of their own stress test on 1,500 German banks.
They attempt to quantify the stress test’s degree of “model uncertainty”, defined as the “range of stress test results that are
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