Employment of CLASS and DFAST models in financial stability assessment in the banking system of IRAN in crisis situation

Document Type : Original Article

Authors
Maryam Sadat Masoudian 1
Mirfeiz Fallah Shams 2
Gholamreza Zomorodian 3
1 PhD student in Financial Management, Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran.
2 Associate Professor, Department of Business Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran
3 Assistant Professor, Department of Business Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran.
10.30495/jik.2024.74633.4370
Abstract
Abstract
Purpose: This research aims to design and explain the financial stability assessment model in the country's banking system by assessing capital and losses in critical conditions. The CLASS model is a top-down capital adequacy stress testing framework that uses public data, simple econometric models and auxiliary assumptions to predict the effect of macroeconomic scenarios on banks.
Methodology: In this research, using the CLASS model, the financial stability of the country's banking system has been evaluated in critical conditions for banks. Comparisons were also made between CLASS and DFAST forecasting models using time series and auto-regression equations, and the forecasting power of the CLASS model with economic reality in critical conditions was also estimated. The research data has been reviewed from 2018 to 2019.
Findings: The results showed that the total capital deficit of the banking system began to increase under the stressful conditions of macroeconomics in the years before the financial crisis and reached its peak in the last quarter of 2018. Banks are most sensitive to macroeconomic conditions at the pre-crisis level and have higher capital ratios, consistent with the "prudent" view of bank capital adequacy. This behavior is only evident during the crisis. These results are interpreted as evidence that the flexibility of the banking system has improved after the financial crisis. Also, the stress test can be used as a valuable example of a macroprudential policy tool.
Keywords
prediction models
bank financial crisis
CLASS model
stability test in critical conditions
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