The balance sheet accounts on the stress tests

This paper studies the influence of the balance sheet structure in the PD (probability of default) and LGD (loss given default) using econometric models. The aim is to study how they affect the aggregates in the balance sheet to the PD and the LGD, distinguishing these effects according to the economic cycle, so that can be applied to the stress test. The results indicate that the balance structure is important in PD and LGD, especially in respect of stockholders’ funds, ECB resources and the account Non-current assets held for sale. It also highlights the influence of the economic cycle and the different behavior of the PD and LGD with respect to the same explanatory variables