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Working Paper
Stress-testing U.S. bank holding companies: a dynamic panel quantile regression approach
We propose an econometric framework for estimating capital shortfalls of bank holding companies (BHCs) under pre-specified macroeconomic scenarios. To capture the nonlinear dynamics of bank losses and revenues during periods of financial stress, we use a fixed effects quantile autoregressive (FE-QAR) model with exogenous macroeconomic covariates, an approach that delivers a superior out-of-sample forecasting performance compared with the standard linear framework. According to the out-of-sample forecasts, the realized net charge-offs during the 2007-09 crisis are within the multi-step-ahead ...