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Stress Testing the Corporate Loans Portfolio of the Swedish Financial Sector

Radomski, Ricard and Forssén, Daniel (2009)
Department of Economics
Abstract
In this study, a macroeconomic credit risk model is applied to Sweden to judge the stability of the Swedish financial system to changes in the macroeconomic environment. Default rates for each industry are regressed against the macroeconomic variables to which Sweden has the greatest exposure and then stress tests are performed on the Swedish corporate loans portfolio to determine whether structural vulnerabilities are present in the financial sector. The findings of this study suggest that Swedish financial institutions are more susceptible to shocks in the real GDP than the real interest rate. Furthermore, the Swedish financial system is found to be only moderately affected by macroeconomic shocks to the corporate loans portfolio.
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@misc{1436798,
  abstract     = {In this study, a macroeconomic credit risk model is applied to Sweden to judge the stability of the Swedish financial system to changes in the macroeconomic environment. Default rates for each industry are regressed against the macroeconomic variables to which Sweden has the greatest exposure and then stress tests are performed on the Swedish corporate loans portfolio to determine whether structural vulnerabilities are present in the financial sector. The findings of this study suggest that Swedish financial institutions are more susceptible to shocks in the real GDP than the real interest rate. Furthermore, the Swedish financial system is found to be only moderately affected by macroeconomic shocks to the corporate loans portfolio.},
  author       = {Radomski, Ricard and Forssén, Daniel},
  keyword      = {Value-at-Risk,Monte Carlo Simulation,Stress testing,macroeconomic credit risk,expected loss,vector autoregression,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {Stress Testing the Corporate Loans Portfolio of the Swedish Financial Sector},
  year         = {2009},
}