The culture of stress testing

Many financial institutions are putting greater focus on stress testing, but most will require a cultural adjustment for it to become an effective part of the risk management process, argues David Rowe

There has been much discussion on how risk management must change if it is to be more effective in future, and stress testing has been central to that debate. The Dodd-Frank Act, meanwhile, mandates that systemically important financial institutions (Sifis) should prepare so-called living wills. These living wills will primarily focus on internal legal structure, cross-entity commitments, restrictions on transfer pricing, guarantees and emergency funding, and in particular on the priority of