This paper describes the 2023 euro area consultation top-down stress test that focused on the resilience of 91 systemically important banks’ capital buffers as of end-2022 to macro baseline and adverse scenarios over the period 2023-25. As a result, the paper is an illustration of a top-down stress test framework with an application to euro are banks. The 2023 euro area consultation top-down stress test included unbiased dynamic panel data estimators based on Lancaster (2002) for projecting profitability components and information on Pillar 3 disclosures (exposure-at-default, probability of default, loss-given-default, expected losses). The paper also expands the 2023 euro area consultation top-down stress test by considering risk-weight functions with Skew-Normal and Transmuted-Normal probability distributions for the idiosyncratic and systemic risk factors. The results of the stress test with both distributions indicate that most euro area banks were resilient under the 2023 euro area consultation baseline and adverse scenarios as of July 2023 (publication of the Staff report).
André Santos (Fri,) studied this question.