Stress Testing
First published:
ISBN: 9781782720089
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Operational Risk: An Overview of Stress-Testing Methodologies
Brian Clark and Bakhodir Ergashev
Introduction to Stress Testing: Approaches, Methods and Applications
Governance over Stress Testing
Stress Testing and Other Risk-Management Tools
Stress Testing for Market Risk
The Evolution of Stress Testing Counterparty Exposures
Operational Risk: An Overview of Stress-Testing Methodologies
Stress Testing of Bank Loan Portfolios as a Diagnostic Tool
Stress-Test Modelling for Loan Losses and Reserves
A Framework for Stress Testing Banks’ Corporate Credit Portfolio
EU-Wide Stress Test: The Experience of the EBA
Stress Testing Across International Exposures and Activities
Liquidity Risk: The Case of the Brazilian Banking System
Determining the Severity of Macroeconomic Stress Scenarios
Numerous international regulatory standards require the implementation of stress testing as a risk-management tool. The Basel Committee on Banking Supervision (2009) (henceforth BCBS), a key international regulatory guidance on stress testing, recommends including stress tests in a bank’s overall risk-management toolkit. The document broadly refers to stress tests as “the evaluation of a bank’s financial position under a severe but plausible scenario”. It provides general principles for stress testing practices, while allowing banks ample discretion in choosing stress-test methodologies. However, the document refrains from prescribing any particular stress-testing approach, thereby leaving banking institutions with broad discretion in choosing stress-testing methodologies.
The purpose of stress testing is often viewed by regulatory bodies and financial institutions as a means to determine how a financial institution’s capital or financial position would be impacted on by an adverse scenario. In most applications, this requires modelling a link between a macroeconomic event or series of macroeconomic events and the performance of a bank’s portfolio of assets. In the context of
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