Stress tests generally fall into two categories:

  • Sensitivities (or single-factor tests), which seek to identify how portfolios respond to changes in relevant economic variables or risk parameters;
  • Scenarios, which seek to assess the resilience of financial institutions and the financial system to an exceptional but plausible scenario.

Our stress testing framework entails:

  • Guidelines on forming stress scenarios and sensitivities
  • An indicative list of macroeconomic factors that can be used to perform sensitivity tests and impact analyses on the capital within the bank
  • Indicative steps to generate macroeconomic models which would link economy- wide factors to bank performance and capital, thus ensuring effective performance of Scenario and Sensitivity Analyses
  • Brief summary of the relevant statistical techniques (econometric modeling approaches)
  • Best practices followed world-wide by banks for conducting stress tests on their portfolios
  • Regulatory requirements on Stress Testing