Aims and Objectives
This course illustrates how to effectively develop, design, manage and measure a stress testing program within an institution. Participants will develop a detailed understanding of the differences between stress testing and scenario analysis and learn how to design scenarios that are reasonable and actionable.
Additionally, the course discusses the integration of stress testing within a bank’s enterprise-wide risk management framework, with specific emphasis on strategic planning, risk appetite, capital adequacy, ICAAP and contingency planning.Emphasis will be attributed to stress testing liquidity (funding and market liquidity). Practical exercises will span between complying with the Basel III regulatory stipulations and the scenarios identified by some sample institutions to be highly relevant in the current regimes. The exercises will analyse the impacts on the key regulatory ratios such as T1 and Core T1, LCR (liquidity coverage ratio), NSFR (net stable funding ratio) and LR (leverage ratio). Sample “impact sheets” on P&L and balance sheet structures will be part of the output deliverables.
Specifically, the course will help participants design effective stress tests based on suitable scenarios to their respective institutions. Participants will develop reverse stress testing algorithms and back test them to match economically viable scenarios via in-class exercises using Excel spreadsheets.
The course provides new insights into the common challenges of stress testing, including reverse stress testing, stress testing key models used for asset liability management and how to communicate results to management, the board and regulators. The learning will be delivered through a combination of presentations and interactive case studies.
- Understand the difference between stress and scenario testing and the benefits of each
- Learn how to develop reasonable tests and stress test reports
- Learn how to use stress testing and scenario analysis to inform capital adequacy and integration into the bank’s ICAAP
- Effectively communicate results to management and the board
- Explore the challenges in developing a stress testing program including the challenges of developing reverse stress tests, data, correlations, and incorporating results into managing the bank
- Use stress testing and scenario analysis in enterprise risk management including integrating into management decision making such as strategic planning, informing risk appetite, and contingency planning
- Develop a checklist with “take-aways” for immediate application at their institution