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Stress Testing
Stress Testing
Why stress testing is important for financial institutions?
Why stress testing is important for financial institutions?
Supervisors are increasingly using stress tests as a means of imposing tougher capital requirements than are set in the minimum capital standards. The tougher the stress test, the higher the number of banks that will fail the test, even if they currently meet minimum capital standards on an un-stressed basis.
Banks that “fail” the tests are required to improve their capital ratios, and are under pressure to achieve these improvements as soon as possible.
What to expect in the future?
- Greater emphasis in future stress tests on specific areas of banks’ activities (sovereign debt, household sector, trading book, international and emerging market exposures), the leverage ratio, funding and liability structure, and operational risk and the costs of misconduct.
- Greater emphasis in future stress tests on banks’ processes and systems for converting macro and financial variable stress tests into an impact on their capital ratios.
How can we help?
- Modelling of a stress test framework which integrates different risk profiles (credit, funding/liquidity, market), based on different scenarios (baseline vs adverse)
- Definition of a stress test process integrated between risk management and planning, based on a forward looking approach
- Execution on stress test and reporting
- Release of a stress test tool
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