Stress Testing Financial Institutions
Stress testing impacts every financial institution in the UK. However, successful stress testing for banks requires an ever-more challenging level of technical analysis, qualitative detail and management insight. And putting stress testing best practice in place isn’t just the obligation of larger institutions participating in the Bank of England’s stress tests, ICAAP is for every lender.
Stress testing financial institutions 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.
Capital stress test consultancy
Jaywing has years of senior experience in stress testing banking and other organisations, gained from working with several of the UK's leading banks and building societies.
In today’s environment, to stress test financial providers is a specialist job for highly trained professionals. Our end-to-end service develops submissions that meet both the PRA’s and your own stress testing requirements.
To stress test financial institutions needs expertise and insight. 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.
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.
Jaywing’s ICAAP consultancy 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
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.
For guidance with IFRS 9 stress tests, including staging and incorporating future economic information, download our latest guide: 'IFRS 9 Stress Testing - Lessons learned so far'.
What our clients say:
“Aside from the Jaywing team feeling like an extension of my own stress testing function, I was equally impressed with their appetite to explore and present a wide breadth of options as we progressed through the modelling challenges and builds. Bringing both industry experience and innovative thinking to bear as they supported our investment in forecasting capability provided me with confidence and trust in the eventual outcome.” Nathan Spry, Head of Credit Risk Financial Planning at Nationwide
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