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Current challenges and the need to automate stress tests

Challenges and the need to automate stress testing

With the volume of data now available, banks continue to struggle with manual stress testing processes. Automation is required.


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Manual processes still an issue

The management of data continues to represent one of the most significant challenges to banks completing stress testing. As our assessment found, nearly 90 percent of respondents said they spend the most effort on data collection and reconciliation. The calculation of test results is considered the second biggest effort at 63 percent, while governance was highlighted as requiring the third greatest effort (53%) with senior management increasingly involved in the process.

The fluctuation in stress testing requirements and the lack of investment by banks in the automation of stress testing have caused institutions to rely on largely manual processes. In addition, they often rely on the efforts of a small number of experienced staff to complete each stress test, with only about 30 percent of respondents agreeing that the volume of resources is sufficient to complete stress testing.  Our analysis also highlights the diversion of resources away from internal stress testing/risk management to perform external stress testing.

Extent to which firms believe their resources and skills match the requirements.

Resource vs skill bar graph

Future challenges and the need for automation

Seventy nine percent of respondents ranked data quality and system automation as their biggest concern. Institutions covered by the BCBS 239 principles for risk data aggregation and reporting may be able to leverage off their investment in data infrastructure to meet requirements. However, data issues may be exacerbated by growing demands from regulators for more regular and detailed information, increasing the need for additional high-quality data. The introduction of changes, such as IFRS 9, will place additional pressures on data requirements as banks begin to explore the data methodology needed to implement these changes into stress testing.

Over half of banks report the ‘changing regulatory requirements’ as a concern to complete stress testing, and 47 percent cite a shortage of resources. Banks also point out that regulatory stress testing frameworks and the processes developed to execute these remain somewhat immature. This hampers their ability to automate and streamline processes and is one reason why many banks report that they make limited use of lower cost locations for stress testing, compounding concerns over resources and lengthy timescales needed to complete each exercise.

Stress testing concerns and challenges

Stress testing concerns and challenges chart


The introduction of new regulatory and accounting rules provides banks with an opportunity to enhance stress testing frameworks. We believe it is essential that banks leverage other programs such as BCBS 239 and IFRS 9 to derive benefits and control costs. In addition, banks should embed stress testing into existing planning and forecasting activities in order to leverage existing resources, tools and methodologies.

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