WEF backs calls for reverse stress tests
"Glaring gaps in risk management" represent one of the biggest dangers facing the world in 2009, and financial institutions must improve their modelling and testing as a matter of urgency, according to a World Economic Forum report launched today.
Speaking at the launch in London, Oliver Wyman chief executive John Drzik, who helped write the report, said: "There needs to be a focus on risks which can kill the organisation. Several organisations have already set up "black swan committees" to focus on these."
Reverse stress tests, which start by outlining an outcome that would threaten the company and go on to determine what scenario would produce such an outcome, have been recommended by regulators including the UK Financial Services Authority.
Drzik echoed criticisms from several regulators that risk management had been treated as a side issue rather than one deserving of constant management attention. Also, "model builders tend to focus on areas where there is a large amount of historical data, which means they underfocus on low-frequency high-impact risks... There's not enough emphasis on stress testing and quantitative models".
See also: Asset price crashes could continue this year, says World Economic Forum
Stress tests were ignored in lead-up to crisis, Basel risk head says
BIS releases roadmap to better stress testing
FSA plans reverse stress tests
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Prop shops recoil from EU’s ‘ill-fitting’ capital regime
Large proprietary trading firms complain they are subject to hand-me-down rules that were originally designed for banks
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FCA presses UK non-banks to put their affairs in order
Greater scrutiny of wind-down plans by regulator could alter capital and liquidity requirements
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management