Analytic Risk Technology

Find Out More

Stress Test Tools for Regulators

Regulators need increased visibility of capital adequacy of banks under stressed scenarios. As part of a scenario testing exercise they need the ability to assess the projected stress results submitted by regulated firms, and take a view on how the capital model has been projected, which means having the calculation capability within the regulator's capital model. The regulator must then take a view on the impairment modelling and may want to feed in results from any models.

Model the effects of management actions

Having come to a view of the capital under stress scenarios regulators then want the ability to examine the effects of the management actions available to the firm to see which ones are plausible to allow in the stress scenarios.

Produce reports

By building the stressed capital model in a structured way we can speed up the process, manage the complexity and allow the data to be presented graphically in ways which have more meaning for stakeholders.

Features

Management of the process

Receive projections under the scenarios from the firms, reconcile them and map them into a consistent and structured capital model.

Manage views side-by side

Manage the calculation of the key capital ratios with the firms and regulators views easily comparable.

Management Actions

See the effects of including individual management actions on the overall capital model.

Vizualization

Produce graphical output to explain the results

"Supervisors should make regular and comprehensive assessments of a bank's stress testing programme ..."

BCBS 155 Principles for sound stress testing practices and supervision, principle 16

Taking a view on projection results
A key decision in designing a stress testing regime is in how much of a view the regulator takes versus relying on the projections calculated and submitted by the banks. This graph shows the variations between the firm results and the view taken by the US FED for the 2015 Dodd Frank Stress Tests (DFAST) showing the risk of variability if only the results from the banks are used.
Calculate the key capital ratios
With the capital ratios modelled under the scenarios the regulators can then take actions in terms of setting appropriate capital buffers and discussing capital plan actions like dividend distributions with the banks, and deciding what to disclose publicly.
Manage the input of Profit and Loss and Impairments from specialists in each risk strand.
An overall stress testing process may also incorporate asset quality reviews (AQR) and regulators’ own impairment modelling. Regulators need a workflow to feed the results their own view of impairments into the capital model. The Capital Modelling Tool is the key piece that gives structure to the overall process and is the mechanism that brings all of the results together and allows a clear picture of the sensitivities and the overall results.
Model the effect on Risk Weighted Assets
Visualization
Analyze drivers of stress, per institution and across the financial system.

Get In Touch

We can provide deep experience in building the stress test business process and governance as well as implementation of the supporting systems.

Experience

The picture of regulatory practice for stress testing and the systems required to support it are still emerging. Our senior team have played a leading role in building these systems of the UK regulators first at the FSA and then the PRA/Bank of England. The practice that is emerging is one which is gaining critical respect in terms of being thorough and credible, while at the same time being pragmatic in not requiring huge resources at the regulator. Thanks to this experience, we are able to provide not only the platform for capital modelling but also implementation, quantitative modelling and ongoing support.

Give us a call or email for more information about our services and products

+44 (0)7956 555116

info@analyticrisktechnology.co.uk