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Stress Testing

Are you ready for the next regulatory stress test? Are you aware of all your risks – particularly the tail risks?
Designed to meet regulatory, ICAAP and strategic requirements

The European Regulators (EBA) oblige banking institutions to take part in a multitude of different regulatory stress tests. The requirements for the stress tests change frequently and are becoming more and more stringent – putting pressure on our clients as regards their ability to follow and model changes in the requirements.

Stress testing is also an important tool for any institutions to understand its risks, Finalyse is ready to help its clients understand their tail risks and hidden vulnerabilities using also reverse stress testing approach.

How does Finalyse address your challenges?

Analysis of the stress testing regulatory requirements (scenarios including macroeconomic variables) and their applicability

Modelling the scenarios and conducting an impact assessment to gauge the performance of the existing models and identifying outliers

Assessment of portfolio dynamics and portfolio weaknesses in extreme but plausible events as well as identification of concealed correlations in portfolio

Supporting the Internal Capital Adequacy Assessment Process (ICAAP) for all asset classes

Ensuring sound governance processes and control mechanisms relating to stress testing

Generating simulation toolkits for model validation and business users

To get all your questions answered

How does it work in practice?

For regulatory stress test, the regulator’s material is analysed. For non-regulatory stress tests (including reverse stress tests) we seek to tailor our approach to your needs. Based to the above the model gets built and run through all the necessary scenarios. The results are then analysed and interpreted as regards to their impact on the Internal Capital Adequacy Assessment Process (ICAAP) as well as on other impacted items that may be of interest to the client.

Key Features

  1. Regulatory check/compliance
  2. Model review
  3. Covers numerous risk types
  4. ICAAP impact
  5. Thorough documentation

What Finalyse experts say

05 Mar, 2019
Reverse Stress Testing

This Expert input discusses reverse stress testing. A type of stress testing that does not ask what the results of certain pre-defined shocks are going to be, but rather, what shocks would have to happen in order for a pre-defined scenario to occur. The reverse stress testing is a tool complementing the normal stress tests, very much required by the regulators. Nevertheless, it is seldom addressed by official documents and serves like a bit of an enigma, even to the institutions that are legally obliged to conduct it. This expert input does not only discuss the regulatory requirements inherent to the stress testing, but also, how Finalyse typically sets to carry out the reverse stress testing.

10 Dec, 2021
Unveiling the clockwork of the 2022 ECB Climate Stress Test

The article walks the reader through the different modules of the 2022 ECB Climate Stress Test. While we still find ourselves at the dawn of introducing climate risk into the existing risk management frameworks, the ECB continues to pave the way for financial institutions. In the methodology paper released in October 2021, the regulator has showcased their expectations for the upcoming bottom-up stress test. By elegantly side-stepping the intricacies of advanced climate modelling, financial institutions are enabled to start their climate stress testing journey while laying strong foundations for more advanced approaches in future exercises.