From the Horse's Mouth: Surveying Responses to Stress by Banks and Insurers

63 Pages Posted: 5 Nov 2020 Last revised: 3 Feb 2021

See all articles by Jeroen Brinkhoff

Jeroen Brinkhoff

European Central Bank (ECB)

Sam Langfield

European Central Bank

Olaf Weeken

affiliation not provided to SSRN

Date Written: April, 2018

Abstract

Existing stress tests do not capture feedback loops between individual institutions and the financial system. To identify feedback loops, the European Systemic Risk Board has developed macroprudential surveys that ask banks and insurers how they would behave in a macroeconomic stress scenario. In a pilot application of these surveys, we find evidence of herding behaviour in the banking sector, notably concerning credit retrenchment. Results show that the consequences can be large, potentially undoing the initial effects of banks’ remedial actions by worsening their solvency position. In contrast, insurers’ responses to the survey provide little evidence of herding in response to macroeconomic stress. These results highlight the usefulness of macroprudential surveys in identifying feedback loops.

JEL Classification: E30, E44, G10, G18, G21, G22, G28

Suggested Citation

Brinkhoff, Jeroen and Langfield, Sam and Weeken, Olaf, From the Horse's Mouth: Surveying Responses to Stress by Banks and Insurers (April, 2018). ESRB: Occasional Paper Series 201815, Available at SSRN: https://ssrn.com/abstract=3723345

Jeroen Brinkhoff (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sam Langfield

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Olaf Weeken

affiliation not provided to SSRN

No Address Available

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