Claus Puhr

Towards a Framework for Quantifying Systemic Stability

This paper describes a prototype quantitative framework for gauging systemic risk which explicitl... more This paper describes a prototype quantitative framework for gauging systemic risk which explicitly characterizes banks' balance sheets and allows for macro credit risk, interest income risk, market risk, network interactions, and asset-side feedback effects. In presenting our results, we focus on projections for systemwide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios. We show how a combination of extreme credit and trading losses can * We would like to thank Emma Mattingley and Ruth Yu for excellent research assistance. The analysis in this paper has benefited from encouragement and contributions from numerous colleagues at the Bank of England and elsewhere. In particular, we are grateful to

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A Framework for Quantifying Systemic Stability

This paper describes a quantitative framework for gauging systemic risk which explicitly characte... more This paper describes a quantitative framework for gauging systemic risk which explicitly characterises banks'balance sheets and allows for macro-credit risk, interest income risk, market risk, network interactions, and asset-side feedback e¤ects. In presenting our results, we focus on projections for system-wide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios. We show how a combination of extreme credit and trading losses could precipitate fundamental defaults and illustrate the possibility of contagious default associated with network e¤ects and …re sales of distressed assets. Despite the joint normality of all risk factors, the model generates a bimodal asset distribution.

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Operationales Risiko und Contagion-Effekt im österreichischen Großbetragszahlungssystem ARTIS

nationalbank.at

... Morten Bech, Kurt Johnson, Jeffrey Arnold und Aaron Katz für äußerst hilfreiche Kommentare zu... more

Towards a framework for quantifying systemic stability

International Journal of …, 2009

Whilst central banks have long used models to guide monetary policy decisions, models of financia... more

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Next Generation Balance Sheet Stress Testing1

This paper presents a "second-generation" solvency stress testing framework extending applied str... more This paper presents a "second-generation" solvency stress testing framework extending applied stress testing work centered on Čihák (2007). The framework seeks enriching stress tests in terms of risk-sensitivity, while keeping them flexible, transparent, and user-friendly. The main contributions include (a) increasing the risk-sensitivity of stress testing by capturing changes in risk-weighted assets (RWAs) under stress, including for non-internal ratings based (IRB) banks (through a quasi-IRB approach); (b) providing stress testers with a comprehensive platform to use satellite models, and to define various assumptions and scenarios; (c) allowing stress testers to run multi-year scenarios (up to five years) for hundreds of banks, depending on the availability of data. The framework uses balance sheet data and is Excel-based with detailed guidance and documentation.

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Next Generation System-Wide Liquidity Stress Testing1

This Working Paper should not be reported as representing the views of the IMF. The views express... more This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF/OeNB or IMF/OeNB policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A framework to run system-wide, balance sheet data-based liquidity stress tests is presented. The liquidity framework includes three elements: (a) a module to simulate the impact of bank run scenarios; (b) a module to assess risks arising from maturity transformation and rollover risks, implemented either in a simplified manner or as a fully-fledged cash flow-based approach; and (c) a framework to link liquidity and solvency risks. The framework also allows the simulation of how banks cope with upcoming regulatory changes (Basel III), and accommodates differences in data availability. A case study shows the impact of a "Lehman" type event for stylized banks.

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The Assessment of Operational Risk in the Austrian Large Value Payment System ARTIS

Social Science Research Network, 2006

... 1 The authors thank Alfred Muigg, Siegfried Wagner, Silvia Schulz, Gerhard Lechner, Michael S... more

Modeling Credit Risk through the Austrian Business Cycle: An update of the OeNB Model

Financial Stability Report, 2009

In quantitative financial stability analysis, the link between the macroeconomic environment and ... more In quantitative financial stability analysis, the link between the macroeconomic environment and credit risk is of particular importance when assessing the risk hidden in loan portfolios. Macroeconomic stress testing, in particular, which aims at measuring the impact of an economic crisis on individual banks or on the entire financial system, depends on means to quantitatively assess this link. Hence, the objective of this paper is to provide a methodological update of the OeNB's previous credit risk model that improves the capture of the relation between macroeconomic variables and probabilities of default for the main Austrian corporate sectors. In addition to the standard model based on individual macroeconomic variables, the paper explores solutions to two important challenges: first, the challenge related to the exploitation of potential information inherent in a larger macroeconomic data set and second, the problem that accounts for potential nonlinearity in the relation between credit and business cycles. The first issue is addressed via a regression model based on a principal components analysis that takes in a wider range of macroeconomic variables than commonly practiced. The second issue is addressed via a threshold approach. This paper presents the estimation results for the three different models and discusses them on the basis of an illustrative example.

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Have mitigating measures helped prevent insolvencies in Austria amid the COVID-19 pandemic?

Monetary Policy & the Economy, 2021

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An integrated approach to stress-testing: the Austrian Systemic Risk Monitor (SRM)

Cambridge University Press eBooks, Dec 24, 2009

Systemically Important Accounts, Network Topology and Contagion in Artis

Social Science Research Network, 2008

This study investigates the relevance of network topology for the stability of payment systems in... more This study investigates the relevance of network topology for the stability of payment systems in the face of operational shocks. The analysis is based on a large number of simulations of the Austrian large-value payment system ARTIS that quantify the contagion impact of operational shocks at participants' sites. It uncovers that only few accounts are systemically important. We also find that network indicators at the node level can have some explanatory power, which is higher when the analysis focuses on contagion measured by the number of banks with unsettled payments than on that measured by the value of unsettled payments. The explanatory power is, however, lower than that of the more traditional measures of node activity (value and volume) of payments. At this stage of our research, network indicators at the network level seem to be of limited use for stability analysis.

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Operational Risk and Contagion in the Austrian Large-Value Payment System ARTIS

Financial Stability Report, 2006

for providing data and valuable information. Our thanks also go to the Bank of Finland for making... more for providing data and valuable information. Our thanks also go to the Bank of Finland for making available the BoF-PSS2 and Matti Hellqvist for his support in adapting the simulator to our needs. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Oesterreichische Nationalbank (OeNB) and the Eurosystem. 2 ARTIS (which stands for Austrian Real Time Interbank Settlement system) is the Austrian component of the Trans-European Automated Real-time Gross settlement Express Transfer system TARGET.

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Systemic Risk Monitor: A Model for Systemic Risk Analysis and Stress Testing of Banking Systems

Financial Stability Report, 2006

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Next Generation System-Wide Liquidity Stress Testing

IMF working paper, 2012

This Working Paper should not be reported as representing the views of the IMF. The views express... more This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF/OeNB or IMF/OeNB policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A framework to run system-wide, balance sheet data-based liquidity stress tests is presented. The liquidity framework includes three elements: (a) a module to simulate the impact of bank run scenarios; (b) a module to assess risks arising from maturity transformation and rollover risks, implemented either in a simplified manner or as a fully-fledged cash flow-based approach; and (c) a framework to link liquidity and solvency risks. The framework also allows the simulation of how banks cope with upcoming regulatory changes (Basel III), and accommodates differences in data availability. A case study shows the impact of a "Lehman" type event for stylized banks.

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Structure and Stability in Payment Networks – A Panel Data Analysis of ARTIS Simulations

Social Science Research Network, 2009

The purpose of this study is the investigation of the importance and impact of network structure,... more The purpose of this study is the investigation of the importance and impact of network structure, both, at the network level across days and at the node level across days and scenarios (stricken ARTIS participants) for the stability of payment systems in the face of operational shocks. The analysis is based on a large number of simulations of the Austrian large-value payment system ARTIS that quantify the contagion impact of operational shocks at participants’ sites. The analysis uncovers that only few payment system participants are systemically important and that contagion displays substantial variation across time and across scenarios. A subsequent panel data investigation tries to explain the variation across time and network participants by structural differences of the payment network across time and the position of the stricken account within the network. It uncovers that (i) standard variables such as liquidity and liquidity loss can explain a substantial fraction of variation, both, across time and across scenarios, that (ii) the structure of the network itself adds very little and (iii) the position of the stricken account within the network indeed contributes somewhat to explaining the variations of contagion. Relative explanatory power is higher when the analysis focuses on contagion measured by the number of banks with unsettled payments or the value of unsettled payments than in the case of the measure based on the number of unsettled payments. In light of the fact that those structural indicators add only little – in terms of explanatory power – to the more traditional measures of the role of an individual participants in the payment system (value and volume of payments) we conclude that at this stage network indicators seem to be of limited use for stability analysis.

A view from the top: The interaction between solvency and liquidity stress

The Journal of Risk Management, Dec 1, 2013

Modeling the COVID-19 effects on the Austrian economy and banking system

Financial Stability Report, 2020

In response to the COVID-19 pandemic, many governments around the globe have imposed strict conta... more In response to the COVID-19 pandemic, many governments around the globe have imposed strict containment measures to prevent the further spreading of the virus. While saving lives, such lockdowns have also led to the largest peacetime economic shock since the Great Depression of the 1930s. To lessen the blow, governments have been complementing containment measures with mitigating measures. The latter serve to cushion both companies' and households' loss of revenue and income suffered during lockdowns, when nonessential economic activity has been suspended or cut to a minimum. In this paper, we only consider mitigating measures addressed to incorporated firms and banks. To assess the vulnerabilities of the Austrian economy and banking system, we follow a two-step approach. First, we have developed a novel model to assess the impact of both containment and mitigating measures on the real economy. This approach combines firm-level micro data from two different databases. To close remaining data gaps, we employ a Monte Carlo simulation to assess the effects of two scenarios based on the current OeNB economic forecast for Austria. We combine these scenarios capturing various policy reactions, i.e. mitigating measures, with firms' solvency and liquidity positions and ultimately derive sectoral insolvency rates. Second, we use the OeNB's top-down stress testing framework ARNIE to assess the COVID-19 impact on the banking system. Rather than employing large-scale regression models to derive risk parameters for credit risk, we infer default probabilities of banks' credit exposure from the Austrian insolvency rates described above. Then, we extrapolate insolvency rates for domestic retail exposures and nondomestic exposures of the Austrian banking system. Here, we assume that individual industry sectors face similar challenges across countries and that country-specific GDP forecasts reflect the overall severity with which individual countries are affected by the pandemic. To this end, we draw on GDP forecasts by the ECB for countries other than Austria as well as country aggregates to calculate scaling factors based on the relative GDP-level deviation. We find that the mitigating measures up to end-August 2020, while effective, only partly offset the COVID-19-induced shock to Austrian firms and banks. They do, however, play an important role in lowering insolvency rates both on aggregate and in the hardest-hit sectors. As a side effect, the mitigating measures taken by the Austrian government and other institutions help improve the outlook for the Austrian banking system, which may benefit indirectly. Moreover, the top-down solvency stress test results show that the Austrian banking system -not only on an aggregate, but also on a disaggregate level -remains well capitalized despite the expected increase in insolvencies. At the time of publication, both COVID-19 containment and mitigating measures will have been extended, which calls into question some of the results of the paper. However, the main conclusion will nevertheless hold: only a substantial further deterioration of the COVID-19 pandemic could put the banking system in a difficult position.

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Liquidity, Risk Concentration and Network Structure in the Austrian Large Value Payment System

Social Science Research Network, 2006

... and DI Alfred Muigg, Siegfried Wagner, Silvia Schulz, Gerhard Lechner, Heidemarie Beyrl, DI M... more

Stress Testing the Exposure of Austrian Banks in Central and Eastern Europe

Financial Stability Report, 2007

Austrian banks are heavily engaged in Central and Eastern European (CEE) markets primarily by run... more Austrian banks are heavily engaged in Central and Eastern European (CEE) markets primarily by running local subsidiaries but also by extending cross-border loans. We give an account of the historical development and the status quo of these exposures and conduct a stress test for the Austrian banking system with respect to its credit exposure visà-vis the CEE region. Our test is based on an analysis of the current state of the local banking systems from a risk perspective, inter alia drawing on stress testing experiences gained by the national central banks and the International Monetary Fund. We use a stress scenario that (i) takes account of the differences in host country risks and (ii) represents a worst case that deliberately exceeds historical shocks. It turns out that, despite the dramatic worsening of the economic environment implied by the scenario, the Austrian banking system is not put at risk by the hypothesized crisis. The possible repercussions of a crisis in a single country via solvency problems of the Austrian parent institution turn out to be well limited.

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Monetary and Capital Markets Departments Next Generation Balance Sheet Stress Testing1

2011 This paper presents a “second-generation ” solvency stress testing framework extending appli... more 2011 This paper presents a “second-generation ” solvency stress testing framework extending applied stress testing work centered on Čihák (2007). The framework seeks enriching stress tests in terms of risk-sensitivity, while keeping them flexible, transparent, and user-friendly. The main contributions include (a) increasing the risk-sensitivity of stress testing by capturing changes in risk-weighted assets (RWAs) under stress, including for non-internal ratings based (IRB) banks (through a quasi-IRB approach); (b) providing stress testers with a comprehensive platform to use satellite models, and to define various assumptions and scenarios; (c) allowing stress testers to run multi-year scenarios (up to five years) for hundreds of banks, depending on the availability of data. The framework uses balance sheet data and is Excel-based with detailed guidance and documentation. (please click on the link “Link to data for this title”).

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