The bank model and the stress test in the 2015 Financial Stability Report
- Bjørne Dyre Syversten, Rønnaug Melle Johansen, Øyvind Andreas Lind, Haakon Solheim and Nicolas Stefano
- Staff Memo
Norges Bank uses stress tests to explore the possible consequences for banks of severe economic shocks. A new model framework for stress testing was introduced in the 2013 Financial Stability Report. The model framework now comprises the macro model NEMO, simple relationships for developments in banking groups' problem loans and a model for projecting banking groups' earnings, balance sheets and capital adequacy. The latter projection model is referred to as "the bank model". The projections in the bank model are based on developments in the macro scenario and projected developments in problem loans in the corporate and household sectors. This article describes Norges Bank's new model framework for stress testing with a particular focus on the assumptions, underlying data and projection rules in the bank model. The article is illustrated by the assumptions and results of the stress test in the 2015 Financial Stability Report.
Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
ISSN 1504-2596 (online)