Basel Committee addresses stress testing

Daily news headlines

A new consultative paper from the Basel Committee looks at the role of stress testing in the context of the current crisis

BASEL - The Basel Committee on Banking Supervision has released a consultative paper assessing weaknesses in stress testing exposed by the unfolding financial crisis.

The Bank for International Settlements paper, 'Principles for sound stress-testing practices and supervision', focuses on the underestimation of the potential severity and duration of stress events and inadequate enterprise-wide risk identification and aggregation. Expectations are also set for supervisors - emphasising responsibilities to review stress-testing practices and ensure sound programmes are put in place.

The paper says effective stress testing should be directed from the board and senior management level, provide forward-looking risk assessments and be used to compliment the information afforded by models and historical data.

The Basel Committee highlights a need for stress testing to form an integral part of capital allocation and liquidity contingency planning. Connected to this, stress testing should guide a bank's risk tolerance and facilitate the development of risk mitigation or contingency plans across a range of stress scenarios.

"Stress testing is an important risk management tool," says Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank. "It plays a critical role in strengthening not only bank corporate governance but also the resilience of individual banks and the financial system."

Wellink says the financial crisis has demonstrated the importance of stress testing as an integral part of any bank's risk management, liquidity and capital planning.

The consultative paper can be downloaded here.

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 copy this content. Please contact info@risk.net to find out more.

Financial crime and compliance50 2024

The detailed analysis for the Financial crime and compliance50 considers firms’ technological advances and strategic direction to provide a complete view of how market leaders are driving transformation in this sector

Investment banks: the future of risk control

This Risk.net survey report explores the current state of risk controls in investment banks, the challenges of effective engagement across the three lines of defence, and the opportunity to develop a more dynamic approach to first-line risk control

Op risk outlook 2022: the legal perspective

Christoph Kurth, partner of the global financial institutions leadership team at Baker McKenzie, discusses the key themes emerging from Risk.net’s Top 10 op risks 2022 survey and how financial firms can better manage and mitigate the impact of…

Emerging trends in op risk

Karen Man, partner and member of the global financial institutions leadership team at Baker McKenzie, discusses emerging op risks in the wake of the Covid‑19 pandemic, a rise in cyber attacks, concerns around conduct and culture, and the complexities of…

Moving targets: the new rules of conduct risk

How are capital markets firms adapting their approaches to monitoring and managing conduct risk following the Covid‑19 pandemic? In a Risk.net webinar in association with NICE Actimize, the panel discusses changing regulatory requirements, the essentials…

Building resilience into ESG risk management

Risk and resilience continue to play an important role in the navigation of an increasingly uncertain world. Fusion Risk Management explores why it is equally crucial for technology to support organisations in addressing pertinent environmental, social…

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here