Stress testing credit risk: a survey of authorities' approaches

This paper reviews the quantitative methods used at selected central banks to stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank specific measures of credit risk (macro stress test). Stress testing credit risk is an essential element of the Basel II Framework; because of their financial stability perspective, central banks and supervisors are particularly interested in quantifying the macro-to-micro linkages and have developed a specific modeling expertise in this field. In assessing current macro stress testing practices, the paper highlights the more recent developments and a number of methodological challenges that may be useful for supervisors in their review process of the banks' stress test models as required by the Basel II Framework. It also contributes to the on-going macroprudential research efforts that aim to integrate macroeconomic oversight and prudential supervision, in the direction of early identification of key vulnerabilities and assessment of macro-financial linkages.Macro stress testing, financial stability, macro-prudential analysis, credit risk,probability of default

A Happiness Approach to Cost-Benefit Analysis

Subjective well-being (SWB) surveys ask respondents to quantify their overall or momentary happiness or life-satisfaction, or pose similar questions about other aspects of respondents\u27 mental states. A large empirical literature in economics and psychology has grown up around such surveys. Increasingly, too, scholars have advanced the normative proposal that SWB surveys be used for policymaking—for example, by using survey results to calculate monetary equivalents for nonmarket goods (to be incorporated in cost-benefit analysis), or to calculate gross national happiness. This Article skeptically evaluates the policy role of SWB data. It is critical to distinguish between (1) using SWB surveys as evidence of preference utility versus (2) using them as evidence of experience utility. Preference utility is a measure of the extent to which someone has realized her preferences; experience utility, a measure of the quality of someone\u27s mental states. The two are quite different because individuals can have preferences regarding non-mental occurrences. Having drawn this distinction, the Article then argues, first, that SWB surveys are poor evidence of preference utility—given problems of preference and scale heterogeneity, as well as other difficulties. Stated-preference surveys are a much better survey format for eliciting preference utility. Second, in considering SWB surveys as an experience-utility measure, we should recognize that experientialism about well-being—the view that well-being is simply a matter of good experiences—is highly controversial. More plausibly, an experience-utility measure might be seen as an indicator of one aspect of well-being. However, even constructing this weak experience-utility measure is not straightforward—as the Article demonstrates by discussing Daniel Kahneman\u27s detailed proposal for such a metric

Localization-dependent charge separation efficiency at an organic/inorganic hybrid interface

By combining complementary optical techniques, photoluminescence and time-resolved excited state absorption, we achieve a comprehensive picture of the relaxation processes in the organic/inorganic hybrid system SP6/ZnO. We identify two long-lived excited states of the organic molecules of which only the lowest energy one, localized on the sexiphenyl backbone of the molecule, is found to efficiently charge separate to the ZnO conduction band or radiatively recombine. The other state, most likely localized on the spiro-linked biphenyl, relaxes only by intersystem crossing to a long-lived, probably triplet state, thus acting as a sink of the excitation and limiting the charge separation efficiency.Comment: 6 pages, 5 figure

Non-Performing Loans and Macroeconomics Factors: The Italian Case

The purpose of this work is to investigate the influence of macroeconomics determinants on non-performing loans (NPLs) in the Italian banking system over the period 2008Q3–2020Q4. We mainly contribute to the literature by being the first empirical article to study this relationship in the Italian context in the recent period, thus providing fresh evidence on the macroeconomic impact on NPLs, i.e., on the credit risk of Italian banks. By employing the Autoregressive Distributed Lag (ARDL) cointegration model, we are able to investigate the short and long-run effects of macroeconomic factors on NPLs. The empirical findings show that gross domestic product and public debt have a negative impact on NPLs. On the other hand, we find that the unemployment rate and domestic credit positively influence impaired loans. Finally, we find evidence of the “gamble for resurrection” approach, i.e., Italian banks tend to support “zombie firms”

Information Avoidance in Risky Financial Behavior

Maxing out credit cards, spending savings accounts, and only paying off the credit card minimum each month are all examples of risky financial behaviors that tend to get college students into debt. These risky choices can stay with a student long after college, making them unable to buy a home or achieve financial independence. As one of the last taboos, personal finances are rarely a topic of conversation among students and their social networks. This investigation uses the Theory of Motivated Information Management to understand what makes college students avoid information and communication regarding personal financial behaviors. Results showed that the TMIM model with the addition of guilt is useful in understanding information avoidance on personal financial behaviors and provides direction for how to induce communication among college students and their social networks on personal financial decisions