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Bank stress testing under different balance sheet assumptions

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  • Busch, Ramona
  • Drescher, Christian
  • Memmel, Christoph

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.

Suggested Citation

  • Busch, Ramona & Drescher, Christian & Memmel, Christoph, 2017. "Bank stress testing under different balance sheet assumptions," Discussion Papers 07/2017, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:072017
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    References listed on IDEAS

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    9. Ramona Busch & Christoph Memmel, 2016. "Quantifying the components of the banks’ net interest margin," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(4), pages 371-396, November.
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    Cited by:

    1. Dräger Vanessa & Heckmann-Draisbach Lotta & Memmel Christoph, 2021. "Interest and credit risk management in German banks: Evidence from a quantitative survey," German Economic Review, De Gruyter, vol. 22(1), pages 63-95, February.
    2. Bernd Engelmann & Ha Pham, 2020. "Measuring the Performance of Bank Loans under Basel II/III and IFRS 9/CECL," Risks, MDPI, vol. 8(3), pages 1-21, September.
    3. Grzegorz Halaj & Sofia Priazhkina, 2021. "Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions," Staff Working Papers 21-35, Bank of Canada.
    4. Ramona Busch & Helge C. N. Littke & Christoph Memmel & Simon Niederauer, 2022. "German banks’ behavior in the low interest rate environment," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 267-296, September.
    5. Andreas Dombret, 2017. "Ertragslage und Widerstandsfähigkeit des deutschen Bankensektors auf dem Prüfstand – Ergebnisse der bankaufsichtlichen Niedrigzinsumfrage 2017," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(23), pages 19-24, December.

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    More about this item

    Keywords

    stress testing; low-interest-rate environment; net interest margin; static balance sheet; dynamic balance sheet; price effect; quantity effect;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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