An empirical study of bank stress testing for auto loans

Deming Wu, Ming Fang, Qing Wang

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We present an empirical study of stress testing for portfolios of auto loans. We find that loans aged five years or more have significantly higher default probabilities. This finding raises concerns about the increasing maturity of auto loans in recent years. A challenge in stress testing is the instability of the estimated coefficient of macroeconomic variables, which raises questions on the reliability of stress test results. For this reason, it is important for model developers to perform sensitivity analyses and make conservative adjustment to minimize model risk.

Original languageEnglish (US)
Pages (from-to)79-89
Number of pages11
JournalJournal of Financial Stability
Volume39
DOIs
StatePublished - Dec 2018

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Keywords

  • Auto loan defaults
  • Loan age
  • Macroeconomic variables
  • Model instability
  • Stress testing
  • Used car prices

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