Professional Documents
Culture Documents
November 2012
Agenda
Stress Testing Pre & Post Crisis:
Stress tests as early warning devices The Regulatory response lessons learnt
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RiskMatrix
The banking systems reported financial indicators are above minimum regulatory requirements and stress tests suggest that the system is resilient.
IMF, Iceland: Financial Stability Assessment update, 19 August 2008.
Within two months, Icelands three biggest lenders had collapsed, leaving its economy in tatters.
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RiskMatrix
A stress test is commonly described as the evaluation of the financial position of a bank under a severe but plausible scenario to assist in decision making within the bank
The financial crisis has highlighted weaknesses in current stress testing practices. Use of stress testing and integration in risk governance Stress testing methodologies Scenario selection Stress testing of specific risks and products
Source: BIS, Principles for sound stress testing practices and supervision, 2009
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RiskMatrix
1:100
1:25
1:20
1:10
1:4
Forecast
1:4
Weaker Economy
Simulation-Based
Healthier Economy
9
RiskMatrix
10
Baseline Scenario Stronger Near-Term Rebound Scenario Mild Second Recession Scenario Deeper Second Recession Scenario Protracted Slump Scenario Below-trend Long-term Growth Scenario Oil Price Increase, Dollar Crash, Inflation Scenario
2010Q3
2015Q1
1994Q1
1994Q4
1995Q3
1996Q2
1997Q1
1997Q4
1998Q3
1999Q2
2000Q1
2000Q4
2001Q3
2002Q2
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q4
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Macroeconomic vectors Unemployment Rate, (Un)Employment Growth Average / Index House Prices Government interest rate and 10yrs bond rate Retail Sales Index Real GDP, Disposable Income, Private Consumption Total Debt Service Ratio
RiskMatrix
User Workflow
Economic/Regulatory scenarios
(MEDC, internal bank scenarios, FED)
Translation engines
PD & LGD models C&I Commercial RE SME Retail
Translation engines
Market data Interest rates Market prices Exchange rates Correlations
Translation engines
Balance sheet Contractual / Behavioral Amortizing / New volume Cost of funds Net interest income
Translation engines
Costs / Taxes Modeling Allocation
Liquidity ratios
Liquidity coverage Net stable funding ratio
P&L forecasts
Net interest income Costs Credit losses
Performance indicators
RAR / EVA RARORWA RAROC
Regulatory capital
EAD (Behaviors / New volumes) Risk mitigation / Effective LGD RWA (EAD, PD, LGD) Countercyclical capital buffer
Economic capital
EAD (Behaviors / New volumes) Risk mitigation / Effective LGD EC (EAD, PD, LGD, Correlations)
RiskMatrix
An integrated and open stress testing solution that goes well beyond software, leveraging on our economic expertise, financial and economic data repository and modeling services
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