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Macro-stress testing dividend income. Evidence from euro area banks

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  • Gross, Christian
  • Jarmuzek, Mariusz
  • Pancaro, Cosimo

Abstract

This paper employs panel data methods to estimate a macro-financial model for dividend income for a sample of euro area banks, with results indicating that financial and macroeconomic variables help explain dividend income. Using the estimated parameters, the study conducts a scenario analysis projecting dividend income over a three-year horizon conditional on the baseline and adverse macroeconomic scenarios prepared for the 2020 EU-wide stress test. The resulting projections show that dividend income is markedly more conservative under the adverse scenario compared to the baseline scenario. This implies that it is important to take account of financial and macroeconomic variables when stress testing dividend income of banks. Relying on scenario-independent dividend income projections might lead to a misrepresentation of banking-sector soundness and resilience to shocks.

Suggested Citation

  • Gross, Christian & Jarmuzek, Mariusz & Pancaro, Cosimo, 2021. "Macro-stress testing dividend income. Evidence from euro area banks," Economics Letters, Elsevier, vol. 201(C).
    • Handle: RePEc:eee:ecolet:v:201:y:2021:i:c:s0165176521000409
    DOI: 10.1016/j.econlet.2021.109763
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    References listed on IDEAS

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    Cited by:

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    2. Schober, Dominik & Etzel, Tobias & Falter, Alexander & Frankovic, Ivan & Gross, Christian & Kablau, Anke & Lauscher, Pierre & Ohls, Jana & Strobel, Lena & Wilke, Hannes, 2021. "Sensitivitätsanalyse klimabezogener Transitionsrisiken des deutschen Finanzsektors [Sensitivity analysis of climate-related transition risks in the German financial sector]," Technical Papers 13/2021, Deutsche Bundesbank.

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    More about this item

    Keywords

    Dividend income of banks; Stress testing; Scenario analysis; Panel data methods;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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