Using Stress-Testing Results to Define Bank Risk

This is the third article in a series on stress testing. The first article discussed the purpose of stress testing and the role it plays in an effective ERM program. The second article examined the methodologies and techniques used in stress testing. This article describes how stress testing can be used in support of defining a bank’s risk. It discusses the role stress testing plays in setting appropriate limits/triggers and in conducting strategic planning, and how the test results can guide the risk decision process and risk mitigation strategies. The authors also offer some tips for stress-testing monitoring and reporting.

Authors: William Hood | William Nayda

RMA Journal Article. November 2012 Issue.