Stress Testing Forecasting

Solve the complexities of forecasting or stressing provision and capital outputs using Jaywing’s tried and tested framework, tailored to your specific needs to fulfil the Bank of England’s CST, ICAAP and other business planning and regulatory objectives.

Stress testing is a fundamental aspect of every financial institution in the UK.

Stress testing isn’t just an obligation for larger institutions participating in the Bank of England’s stress tests or firms looking to fulfil ICAAP for PRA regulatations. It's for all financial organisations.

All lenders must remain up-to-date on their loss forecasts in a fluctuating macro-environment.

Our team of analytical credit risk and stress testing professionals is among the best in the UK, renowned for its skills in data, modelling, and analysis – each of which is crucial for a successful stress testing project.

The key to successful stress testing

Successful stress testing requires an ever-more challenging level of technical analysis, qualitative detail and management insight.

Whether it be for capital or provisions, Jaywing's approach is based on emulating the model component framework (e.g. PD, EAD & LGD) with a macro-economic element inserted to facilitate a forecasted version over the forecast horizon.

We typically build a (or leverage an existing) macro-economic model or adjustment that shifts the portfolio risk drivers (e.g. balance, arrears, credit grade, LTV band) in relation to the economic scenario being applied to it.

These stress testing models produce the best results - built at an aggregated level rather than facility level.

Stress testing requires the modelling of more scenarios than ever at unprecedented speed and accuracy, regardless of whether you need to conduct the ICCAP or concurrent stress testing. And now, with the PRA expecting stress tests to be done on an IFRS 9 basis, lenders need to reassess current practices.

An end-to-end service to meet both the PRA’s and your own stress testing requirements.

Jaywing has years of experience in stress testing, gained from working with several of the UK's leading banks and building societies.

In today’s environment, stress testing is a specialist job for highly trained professionals. By guiding you through data preparation and the development of models for enterprise-wide stress, we produce forecasting views of impairment, capital and revenue metrics that underpin the underlying story of how you would meet the challenges of an economic stress event.

Stress testing, in particular IFRS 9 provisions, can be challenging.
Jaywing’s experts can support you with:

  • Identification and construction of appropriate ICAAP economic scenarios
  • Modelling of stress scenarios and the impact on losses
  • Identification of appropriate management actions and design of recovery plans
  • Support with model risk requirements for stress testing models
  • Pillar 2B assessment

Among the best in the UK

Our team of analytical credit risk and stress testing professionals is among the best in the UK, renowned for its skills in data, modelling, and analysis – each of which is crucial for a successful stress testing project.

ICAAP and Stress Testing

Stress testing is an integral part of the ICAAP and being able to demonstrate that your capital resources are sufficient to cover your risks. The demands are ever increasing as ICAAP stress testing takes an ever more central role in capital adequacy. From being able to produce an appropriate ICAAP economic scenario to being able to demonstrate that a model is fit for purpose, the supervisory focus on stress testing has increased dramatically.

IFRS 9 Stress Testing

From 2018, the PRA expects stress testing submissions to be done on an IFRS 9 basis, for both Concurrent Stress Tests (CST) for the biggest UK lenders and as part of individual firms’ ICAAP.

This encourages lenders to:

  • Revise outdated frameworks - The need for integration will encourage firms to revisit data management, modelling structure/approach and governance.
  • Eliminate complexities - Aligning stress testing and IFRS 9 models is a natural step toward eradicating complexities from using different models to estimate similar metrics.
  • Improve transparency and consistency of results - In the long run, eliminating complexities will give more confidence to the regulators and the public.
How to run stress tests on an IFRS 9 basis