Many a little makes a mickle

We develop a macroeconomic portfolio stress test that is specically geared towards
small and medium-sized banks. We combine a credit risk stress test which simulates
credit impairments via a CreditMetrics type multi-factor portfolio model with an
income stress test in the form of dynamic panel data regressions. Based on a stress
scenario that extends experience of the nancial crisis by integrating the current
low interest rate environment, we analyse the stress impact on banks' capital ratios.
Our results show that savings banks and cooperative banks prove to be very resilient
to macroeconomic stress, while more than 6% of our sample's credit banks \fail"
the stress test, mainly due to their lack of capital. The main stress drivers prove to
be credit impairments rather than other net income components.