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Integrated Stress Testing Solution


ACS were engaged to develop an integrated stress testing solution for a Tier 1 UK retail and wholesale bank.

Consideration

  • Centrally administered stress testing function.
  • Stress tests aligned with Bank’s risk policy and regulatory requirement.
  • Top Down stress test model to be available for business operations decisions.
  • Integrate various stress tests across risk types.
  • Availability of accepted and agreed common data used for stress tests.

Solution Design

  • The approach was to organise the stress testing effort so as to require minimum overlap with other risk functions, be centrally administered and comply with the Bank’s risk policy.
  • Develop a stress test policy for the Bank comprising the sum of its retail and wholesale operations.
  • Define integrated stress testing to include top down, bottom up, enterprise wide, across all major risk types and embedded in business operations.
  • Develop a central stress test engine to run tests which consolidated financial measures and business scenarios.
  • Define data to be used for stress testing and usage policies including creation of a specific reconciled data warehouse.
  • Define finance infrastructure to support the data required – transactions and accounting data.
  • Define risk specific data requirements.
  • Develop impairment, capital, profitability and liquidity models for stress tests.
  • Define model selection criteria and calculation methods.
  • Define reporting requirements for management, business operations, regulatory and rating agencies.

Realised Benefits

  • Satisfy regulatory requirements.
  • Enable management to plan for contingency scenarios.
  • Make appropriate credit and capital allocation decisions.
  • Manage enterprise risk better.
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For more information about how we can help you please contact us

Krishan Gopal

Krishan-Gopal
Principal Consultant Credit and Market Risk

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