Stress testing household balance sheets in Luxembourg

This paper uses representative individual household data from Luxembourg to evaluate how severe economic conditions could affect bank exposure to the household sector. Information on household income, expenses and liquid assets are used to calculate household-specific probabilities of default (PD), aggregate bank exposure at default (EAD) and aggregate bank loss given default (LGD). The exercise is repeated with scenarios combining severe but plausible shocks to real estate prices, bonds and stocks, household income and interest rates. Compared to the no-shock baseline, the LGD rises by a mult... Mehr ...