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1、毕 业 设 计（论 文）外 文 参 考 资 料 及 译 文译文题目：Stress tests of UK banks using a VAR approach 以VAR方法对英国银行的压力测试 学生姓名： 罗国帼 学号： 0921404023专业： 金融学 所在学院： 龙蟠学院 指导教师： 高蓉蓉 职称： 讲师 2011年 3 月 8 日说明：要求学生结合毕业设计（论文）课题参阅一篇以上的外文资料，并翻译至少一万印刷符（或译出3千汉字）以上的译文。译文原则上要求打印（如手写，一律用400字方格稿纸书写），连同学校提供的统一封面及英文原文装订，于毕业设计（论文）工作开始后2周内完成，作为成绩考核
2、的一部分。Stress tests of UK banks using a VAR approachContentsAbstract Summary 1 Introduction 2 Literature review 3 Choice of macroeconomic variables and estimation 4 Data issues 5 Aggregate and sectoral results 6 Robustness checks 7 Variable decomposition 8 Conclusions Appendix References Abstract: Thi
3、s paper adopts a new approach to stress testing the UK banking system. We attempt to account for the dynamics between banks write-offs and key macroeconomic variables, through conditioning our stress test on the historical correlation between the variables and allowing for feedback effects from cred
4、it risk to the macroeconomy. In contrast to most existing empirical stress testing work, this paper uses a direct measure of banks fragility the write-off to loan ratio. We find that both UK banks total and corporate write-offs are significantly related to deviations of output from potential.Followi
5、ng an adverse output shock, total and corporate write-off ratios increase. Mortgage arrears, on the other hand, appear to be mainly dependent on household income gearing. The results suggest that, even if the most extreme economic stress conditions witnessed over the past two decades were repeated,
6、the UK banking sector should remain robust.Key words: Macro stress testing；bank fragility,；loan write-offs；VAR analysisSummaryStress tests were performed on the resilience of the UK banking system as part of the IMF Financial Sector Assessment Programme (FSAP). These tests revealed that the UK banki
7、ng system was robust to a number of adverse shocks. Most of these tests were conducted by the large banks themselves,based on scenarios developed from the Bank of Englands Medium Term Macroeconometric Model.To compare the robustness of such a conclusion to the choice of stress test, this paper propo
8、ses analternative test of the resilience of the UK banking sector, which analyses the common developments in a measure of bank fragility and key macroeconomic variables. An advantage of the stress test proposed here is its ability to analyse within a small system of equations the increase in bank fr
9、agility following a shock to a single macroeconomic variable, allowing for the potential impact on other key macroeconomic variables that may also affect bank fragility. Furthermore, the test allows for feedback effects from an increase in fragility back to the macroeconomy for example, an increase
10、in the default rate on loans by the household and corporate sectors may cause consumption and investment to fall subsequently.The stress tests used here, like most other methodologies, may not fully capture structural changes inthe banking industry. Nonetheless, the results are robust to a number of
11、 checks and uncover some important relationships between macroeconomic dynamics and the loan write-off ratio our measure of bank fragility. UK banks aggregate write-offs, and particularly corporate ones, are found to be sensitive to a downturn in economic activity. Household write-offs, on the other
12、 hand, are found to be more sensitive to changes in income gearing. The results suggest that, even if the most extreme economic stress conditions witnessed over the past two decades were repeated, the UK banking sector should remain robust.The approach to stress testing proposed in this paper is str
13、aightforward to implement and provides a useful complement to the suite of models used to assess banking sector vulnerability.IntroductionMacroeconomic stress tests of the financial system have been developed in recent years (see Sorge (2004) for a recent survey and discussion). These tests assess t
14、he vulnerability of the banking system,or more broadly the financial system, to extreme but plausible adverse macroeconomic shocks.Stress tests are important, from a central banks perspective, since they are tractable and provide a useful benchmark to assess the risks to the financial system (see Bu
15、nn et al (2005).Recently, as part of the IMF Financial Sector Assessment Programme (FSAP), stress tests were performed on the resilience of the UK banking system. The stress test scenarios were derived from aversion of the Bank of Englands structural Medium Term Macroeconometric Model (MTMM). The sc
16、enarios were then applied to UK banks aggregate loan book (see IMF (2003) and Hoggarth and Whitley (2003). The main findings of this analysis were that the UK banking system was robust to a range of plausible adverse macroeconomic developments.In this paper we adopt a different approach to perform m
17、acroeconomic stress tests on the UK banking system and investigate whether the conclusions arising depend on the choice of stress test and on the fragility variable used. We attempt to account for the dynamics between banks write-off to loan ratio and key macroeconomic variables using a parsimonious
18、 vector autoregression (VAR) model. Unlike most existing stress testing work on links between the business cycle and the fragility of the banking system, a direct measure of banks fragility the write-off ratio on loans is employed. The advantage of the VAR is that it estimates how write-offs change
19、in the quarters following adverse business cycle shocks implying that the stress test is conditional on the historical correlation among the variables in the multivariate model. The VAR approach also allows for potential feedback effects from the fragility of banks balance sheets to the macroeconomy
20、 (a potentially important linkage emphasised by, inter alia, Sorge (2004). No conventional theoretical macroeconomic model describes the relationship from macroeconomic variables to bank write-offs and vice versa (for example by affecting the supply of bank credit and thus investment). We attempt to
21、 resolve this problem in two steps. First, the paper discusses a macroeconomic model to help guide the choice of a parsimonious number of macroeconomic variables to include in the specification. Second we augment this vector of macroeconomic variables with the write-off data and let them affect one
22、another in an autoregressive manner without restricting the dynamics. Finally the paper considers some alternative financial and economic variables that could affect the write-off ratio and macroeconomic variables. Such robustness checks are important since the conclusions could be misleading if som
23、e key variables are left out of the analysis.This paper conducts one of the first multivariate analyses of how macroeconomic developments affect UK banks loan write-offs both in aggregate and at the sectoral level. The importance, from a stress-testing viewpoint, of having data on banks fragility co
24、vering at least one full economic cycle is emphasised. Although write-off data are available on a quarterly basis only from 1993, annual data on aggregate write-offs for the major UK banks are available back to the late 1980s. In this paper a number of methods for interpolating these annual data ont
25、o a quarterly basis are considered using the available information on the characteristics of the quarterly and annual data in the sample from 1993-2004. Using three alternative interpolation schemes, the multivariate analysis is performed on a sample of quarterly data from 1988 to 2004, therefore co
26、vering a full UK economic cycle. Since aggregate data may mask different patterns at the sectoral level, separate sectoral VARs are also estimated for corporate write-offs and household defaults. While the disaggregated approach has the advantage of assessing the impact of stress tests on different
27、components of banks loan portfolios, it suffers from the drawback that data are available, at the earliest, only from 1993 and thus do not cover a complete economic cycle.The remainder of the paper is organised as follows. Section 2 reviews the literature on stress testing,Section 3 discusses the ch
28、oice of variables in our VAR, Section 4 discusses data and estimation issues, and Section 5 contains the main results of the estimations. In Section 6 a number of robustness checks on the results are discussed while in Section 7 the key factors affecting write-offs are decomposed. Section 8 conclude
29、s.Literature reviewA number of approaches have been used in the past to stress test banks for credit risk. The most common approach used in IMF country FSAPs are single factor sensitivity tests. These look at the impact of a marked change in one variable, such as the exchange rate or the policy inte
30、rest rate, on banks balance sheets. However, these stress tests do not allow for the interaction between macroeconomic variables (scenarios) such as, in the example above, the impact of changes in the interest rate on real activity and thus on banks loan portfolio. Scenarios can be developed through
31、 a number of methods. One approach is to use a structural macroeconomic model. This was done, for example, in a number of IMF FSAPs on developed countries. An alternative avenue is pursued by Boss (2002) to stress test the Austrian credit portfolio. His analysis is based on CreditPortfolioView, whic
32、h models the default probability of certain industrial sectors as a logistic function of a sector-specific index, which, in turn, depends on the current value of a number of macroeconomic variables. The parameter estimates derived from this model are then used to assess the future losses on Austrian
33、 banks loan portfolios. A different methodology to assess the impact on the Austrian banking sector of credit and market risk is applied in Elsinger, Lehar and Summer(2002). Their paper analyses the effect of macroeconomic shocks on a matrix of Austrian interbank positions. Specifically, the authors
34、 are able to assess the probability of individual bank failures in response to a series of macroeconomic factors while at the same time taking into account the effect that these failures have on the rest of the banking system. This model thus decomposes bank defaults into those that arise directly a
35、nd those that are a consequence of contagion. The interaction between banks financial conditions and the macroeconomy is modelled by assuming that macroeconomic scenarios are drawn from a joint probability distribution of interest rate shocks, exchange rate and stock market movements, as well as sho
36、cks related to the business cycle. Pesaran et al (2004) and Alves (2004) use a VAR model to assess the impact of macroeconomic variables on firms probabilities of default. In Pesaran et al the VAR includes GDP, consumer prices, the nominal money supply, equity prices, exchange rates vis-vis the doll
37、ar and nominal interest rates for eleven countries/regions over the 1979-99 period. The global VAR is used as an input into simulations for firms equity returns, which are then linked to the loss distribution of a corporate loan portfolio. A clear advantage of this approach is that it links the cred
38、it risk of internationally diversified loan portfolios in a detailed macroeconomic model that allows for differences across country and region. Alves (2004) constructs a co-integrated VAR, using KMVs corporate expected default frequencies (EDFs) as endogenous variables and macroeconomic factors (the
39、 twelve-month change in industrial output, the three-month interest rate, the oil price, and the twelve-month change in a broad stock market index) as exogenous variables. The expected default frequency (EDFs) of each EU industrial sector is modelled based on exogenous macroeconomic factors together
40、 with the EDFs of other industrial sectors to capture the possibility of contagion.However, neither of the above VAR models explicitly incorporates measures of the quality of banks balance sheets. In this paper a VAR system is also used but one that includes a direct measure of banks fragility the l
41、oan write-off ratio as well as macroeconomic variables.(1) As the write-offs on loans to private non-financial corporations (PNFCs) and households may be related differently to the business cycle, the VAR is also estimated using sectoral data for households and PNFCs.ConclusionsThis paper proposes a
42、n additional tool for performing stress tests of the robustness of the UK banking system to adverse macroeconomic shocks. A VAR approach is used to estimate the impact of changes in macroeconomic variables on banks aggregate losses since the late 1980s and sectoral losses since the early 1990s. Unli
43、ke most of the existing work, this paper uses a direct measure of bank fragility the write-off to loan ratio.For the aggregate write-off model, a clear and significant negative relationship is found between changes in output (relative to potential) and the write-off ratio although not vice versa. Sh
44、ocks to output are found to have a significant impact on the write-off ratio up to six quarters ahead, with the maximum impact occurring after one year. The bank write-off ratio is also found to increase following shocks to nominal variables such as annual rate of retail price inflation and nominal
45、interest rates although here the impact is only significant at a longer time horizon (after four-six quarters).The results suggest that following a shock to the output gap of the same magnitude experienced in the early 1990s, the aggregate write-off ratio of UK banks would increase by around 0.7 per
46、centage points. This, of course, is non-trivial but would still only equate to one third of the major UK banks average pre-tax average annual profits over the past three years. Therefore, according to these results, the UK banking system as a whole would appear to be robust to large adverse macroeco
47、nomic shocks.Over the common shorter (post-1993) sample period, the corporate sector write-off ratio is found to be twice as sensitive to output shocks as the aggregate write-off ratio. Household write-offs, on the other hand, seem to be more sensitive to changes in income gearing than changes in ec
48、onomic activity per se, even though the economic impact is quite small. This result is confirmed whenseparate VARs are estimated using arrears on credit cards and on mortgages. While the impact of income gearing on mortgage arrears is statistically and economically significant, credit card arrears do not respond to income gearing shocks. This result may be attributable to a more than offsetting structural change in the household unsecured borrowing market over the more recent period.It is also noticeable that