financial risk fitness gmbh

Landsberger Straße 98 - D-80339 Munich
Phone +49 89 46139112 - www.financial-risk-fitness.com

Stress Testing – International Best Practices

This two-day workshop illustrates how to effectively develop, design, manage, and measure a stress testing program within a financial institution. Participants will develop a detailed understanding of the differences between stress testing and scenario analysis and learn how to design scenarios that are reasonable and actionable.

Additionally, this two-day workshop will discuss the integration of stress testing within your bank’s enterprise-wide risk management framework, with specific emphasis on strategic planning, risk appetite, capital adequacy, ICAAP, and contingency planning.

Specifically, the workshop will help participants to design effective stress tests based on suitable scenarios to their respective institutions. During the workshop, participants will develop reverse stress testing algorithms and back test them to match economically viable scenarios via in class exercises using excel spreadsheets.

At the end of the two days, you will have new insight into the common challenges of stress testing, including reverse stress testing, and how to communicate results to management, the board, and regulators. The information will be offered through a combination of presentations and interactive case studies.

Who should attend

  • Risk Management Professionals
  • Stress Testing Units Managers
  • Senior Executives of Banks
  • Internal Auditors
  • Management Accountants and Controllers
  • Financial Accountants
Day One

Session 1 – Why Stress Testing?

  • Usage of Stress Testing beyond Regulatory Compliance
  • Requirements for Sturdy Stress Tests
  • Lessons from the Financial Crisis
  • Stress Tests vs Sensitivity analyses

Session 2 – Best practices stress scenarios

  • Types of Stress Tests
  • Regulatory Recommendations/ Requirements
  • Scenario Development Methods
  • Execution
  • Application
    • Impacts on Infrastructure & Organization

Session 3 – Stress testing credit risk

  • Best Practices for Universal Banks
  • Focus – Retail portfolios
  • Focus Corporate Portfolios
  • Focus Financial Institutions

Session 4 – Stress Testing market risk

  • Defficiencies of traditional VaR Methods
  • From VaR to CVaR/Expected Shortfall
  • VaR with stressed parameters
  • Challenges to the “Unique Valuation” Paradigm
  • Example: Deutsche bundesbank

Session 5 – The EBA stress tests

  • EBA Stress Tests 2014
  • EBA Stress Test 2016
  • Differences and commonalities with CCAR and DFAST

Session 6 – Scenario vs. Sensitivity analysis

  • When is a Scenario a Stress Scenario?
  • Historical Simulation Methods
  • EVT Methods

Session 7 – Using stress Testing to transit to IFRS9 (by SAS professionals)

  • Case Study
Day Two

Session 1 – Funding liquidity stress testing – best practices

  • Liquidity at Risk
  • Scenario Drivers
  • Market vs Funding Liquidity – Stress Test Implications
  • Best Practices Tests for Funding Liquidity
    • American Banks
    • Australian Banks

Session 2 – LVAR and reverse stress testing

  • Mathematics of LVaR and Reverse Stress Testing
  • Liquidity at Risk

Session 3 – Organizational Framework and Risk Policy

  • Best Practices Organizational Framework
  • Best Practices MIS
    • Common Traps
    • Mistakes made and consequences - Examples
  • Action upon Stress Test Results
  • Stress Testing committees

Session 4 – Limits and Risk Appetite

  • Stress Tests as Management Tools
  • Limits derived from Economic/ Regulatory Capital Considerations
  • Limit Management Systems

Session 5 – Integration of stress tests into bank capital management

  • Key Challenges in turbulent Markets
  • ICAAP with Stressed Inputs
  • Capital Liquidity Bridge - Example

Session 6 – Case Study

  • Case Study: Stress Tests at a large Swiss Universal Bank
  • Discussion