Stress Testing and Scenario Analysis Workshop

Registration Link for 30/01/2012 – 31/01/2012 Session

Workshop Overview
This two-day workshop illustrates how to effectively develop, design, manage, and measure a stress testing program within an 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.

This two-day workshop illustrates how to effectively develop, design, manage, and measure a stress testing program within an 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.

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 Will Benefit?
The course will benefit credit risk and market risk professionals involved in designing or executing stress and scenario tests and interpreting the results. It will also be valuable for senior management responsible for considering the response to test results or for discussing the results with regulators.

The course will benefit involved in designing or executing stress and scenario tests and interpreting the results. It will also be valuable for responsible for considering the response to test results or for discussing the results with regulators.

You will:

• Understand the difference between stress and scenario testing and the benefits of each
• Learn how to develop reasonable tests and stress test reports
• Learn how to use stress testing and scenario analysis to inform capital adequacy and integration into the bank’s ICAAP
• Effectively communicate results to management and the board
• Explore the challenges in developing a stress testing program including the challenges of developing reverse stress tests, data, correlations, and incorporating results into managing the bank
• Use stress testing and scenario analysis in enterprise risk management including integrating into management decision making such as strategic planning, informing risk appetite, and contingency planning
• Develop a checklist with take-aways for immediate application at your institution

Course Outline
Introduction to stress testing and scenario analysis 

• Difference between stress and scenario analysis.
• Benefits
• History of stress testing
• Relationship to Value at Risk
• Types of stress and scenario testing

Designing scenarios

• Relationship to macro events
• Developing firm specific events
• How much stress to apply?
• Using regression analysis and statistics to determine the relationships and severity of stress
• Are the scenarios reasonable and actionable?

More on developing scenarios

• For specific risks
  • Credit
  • Interest Rate
  • Liquidity
  • Counterparty
  • Operations
  • Reputational Risk

• Ensuring consistency across risks
• Relationship between macro events
• Aggregating the results
• Considering correlation
• Data

• Availability
• Accuracy
• Completeness for all instruments and divisions
• Accessibility and ability to manipulate the data
• Understanding global markets and the correlations between global markets
• Understanding correlations between risk types

Governing the stress testing program

• Who will run it?
• How will it be governed?
• Developing limits and targets

Case Study

Reverse Stress testing

• What is it?
• How to identify scenarios?
• How it integrates with enterprise risk management
• Reporting

Reporting

• What are the important elements?
• Design

Communicating the results to managers, directors and regulators

• Incorporating with regulatory prescribed stress tests

Use in Risk Management

• How will it be used?
• Frameworks and committees to support
• Informing risk appetite
• Strategic planning
• Contingency planning
• Capital Adequacy
• Pillar 2 and integration into the ICAAP

Challenges

• Agreeing on scenario creation - How much and how long?
• Overseeing the program
• Aligning stakeholders to develop consistent scenarios across business units
• Practical use of the output in risk appetite and contingency planning
• Data
• Cost, time and IT restrictions
• Model risk and the accuracy of forecasts
• Staying up to date and relevant as macro conditions and risks change
• How to bring it all together for instance the macro input on a bank may affect credit, IRR, liquidity, deposits, NIM, loan demand, balance sheet composition, impairments or allowance, and drawn and undrawn

Developing an action plan

• Kicking off the project and building the necessary consensus
• Identifying key stakeholders
• Scenario creation
• Developing the competencies, models, and resources required
• Determine the macro relationships
• Gaining practice in working together to determine the impacts
• Develop reporting requirements
• Integration into planning