Stress Testing Financial Services Banking Union Center

Article

Stress Testing

Moving from a regulatory exercise to a management tool

Stress testing is a key risk management tool which touches all areas of an organisation and has come under increasing regulatory scrutiny since the financial crises. Firms are under pressure to embed stress testing and minimise the operational burden. Deloitte has helped firms across the Banking Union in addressing this challenge.

Market Overview

Stress testing has become a key tool in regulators‘ approach to firm supervision across the globe. It is used, not only to assess the capital position firms, but almost as importantly to judge the effectiveness of risk management within an organisation. The regulatory standards have continued to be raised.

However stress testing should not just be seen as a regulatory exercise to be completed once a year and then put on the shelf. Senior management should use stress testing to support and enhance their strategic planning. Firms should use a range of stress scenarios, of varying severities, to help them understand the vulnerability and volatility of their business and assess management actions accordingly. A fully embedded stress testing framework enables a firm to better understand its risk profile and make informed strategic decisions that protect its long-term sustainability.

Meeting the challenge

In order to fully embed stress testing an organisation, a firm needs to establish a clear stress testing framework covering the key aspects of (i) Governance & Reporting (ii) Policies & Process (iii) Data & Infrastructure (iv) Modelling (v) People and (vi) Embedding.

At Deloitte, we help firms meet the challenge of developing an industry leading stress testing framework by:

  • Designing and implementing bespoke solutions which can support effective end-to-end stress testing activities allowing firms to use their stress testing framework as a core risk management tool; 
  • Supporting remediation activities by implementing short term solutions, conducting gap analysis, and regulatory and peer benchmarking; and establishing enhancement plans to help firms align themselves with their risk strategy; and
  • Delivering tactical solutions by providing our clients with specialised resources with demonstrated experience in the market.

Our Support