A value-at-risk approach to commercial real estate portfolio stress testing at US community banks
Abstract
The December 2006 federal regulatory guidance on commercial real estate (CRE) requires banks with significant concentrations in CRE lending to employ appropriate risk-management techniques to measure and manage the risk. Using vector autoregression techniques on historical CRE foreclosure rates, the authors develop a value-at-risk CRE portfolio stress-test methodology. They document the build-up of CRE concentrations in bank loan portfolios and explain how banks can use a spreadsheet-based simulation methodology to measure their portfolio risk across the entire loan portfolio.
The full article is available to subscribers to the journal.
Author's Biography
John Hall is an associate professor of finance who specialises in banking research at the University of Arkansas at Little Rock.
David Kern is an associate professor of finance who specialises in banking research at Arkansas State University.
Timothy Yeager is an associate professor of finance who specialises in banking research and is the Arkansas Bankers Association Chair in Banking at the University of Arkansas.
Tom King is the Chief of the Monetary and Financial Stability Section in the Division of Monetary Affairs at the Federal Reserve Board of Governors.
Kevin Lee is the international business concentration coordinator and assistant professor of finance at the California State University, Fresno.
Citation
Hall, John, Kern, David, Yeager, Timothy, King, Tom and Lee, Kevin (2011, December 1). A value-at-risk approach to commercial real estate portfolio stress testing at US community banks. In the Journal of Risk Management in Financial Institutions, Volume 5, Issue 1. https://doi.org/10.69554/WTNQ8720.
Publications LLP