Assessing Stress Testing as a Practical Risk Management Tool
Bankers and regulators worldwide have been increasingly focused on enhanced stress testing as a risk management tool to help gauge and reduce vulnerability to unexpected external shocks. The attention being paid by regulators to systemic risk has increased the focus on stress testing. As techniques are improved and banks become more familiar with the processes required, enhanced stress testing is emerging as a standard supervisory tool, putting a premium on understanding what it involves and how it can best be used.
This white paper aims to examine some of the challenges of making stress testing live up to expectations. To that end, the Deloitte Center for Financial Services has interviewed risk managers from leading banks operating around the world about their efforts to implement more comprehensive stress testing. Their most pressing concerns appear to revolve around:
- Developing the right infrastructure
- Refining the governance framework
- Covering the gamut of risks – from market and credit to operating and liquidity
- Employing reverse stress testing fruitfully
- Linking stress tests results to strategic and capital decisions
Read the attachment to learn more.