Stress Testing

Stress Testing is at the heart of the risk management discipline. Policy makers and regulators in the EU and US require from financial institutions to demonstrate evidence of their solvency in accordance to a set of stringent yet uniformly applied forward looking testing standards. 

Financial institutions conducting stress tests not only for regulatory compliance but also for improving their risk management and business decision making processes were found to be better positioned and emerged stronger from the recent financial crisis. The practical applications of stress testing can be as instructive to business-line managers making operational decisions as they are to top executives making strategic ones. Properly conceived and executed, stress testing makes institutions more efficient and better informed about what drives risk at every level of the organization.

• Interpret regulatory requirements and industry best practices
• Review and evaluate an existing stress test program and provide recommendations for improvements
• Design and develop a new comprehensive stress testing framework in a modular approach and cost-efficient manner
• Provide scalable stress test solutions, matched to the size and complexity of the institution, that comply with specific regulatory regimes (including: EU – Asset Quality Reviews and Stress Tests; UK – Stress Tests; US-Comprehensive Capital Analysis & Reviews and Dodd-Frank Act Stress Tests). See Examples of such scalable solutions below
• Outsourced services, either in the form of coordinated engagement or as a stand-alone project. Institutions at any stage of implementation can target the assistance they seek.

• Performing gap analysis of governance, infrastructure, and analytic capabilities against regulatory requirements and industry best practices. Make recommendations on addressing gaps
• Reviewing governance, policies, and procedures to find weaknesses and fix them
• Assisting firms in meeting supervisory expectations for ICAAP and SREP, including interpretation of specific feedback from supervisors, and in developing remediation plans to address supervisory concerns.
• Model validation and calibration
• Identification of material risk factors to the organisation
• Generation of regulatory scenarios and company–specific (idiosyncratic) stress scenarios
• Model selection, design and development
• Implementing the right level of granularity across business lines and risk types, informed by regulatory insight and risk-materiality assessments
• Developing reporting solutions