Stress Testing: Theory to Practice
The sessions at RiskMinds International don't just focus on top-line, broad issues keeping CROs awake at night, technical workshops also run throughout the conference to deliver up-to-the-minute insight on all aspects on risk management. Jo Paisley is the ex Global Head of Stress Testing at HSBC and the former Director of the Supervisory Risk Specialist Division at the PRA and is leading the Stress Testing: Theory and Practice workshop.
Stress testing has become one of the key tools for regulators to assess the financial health of financial institutions. As a former regulator, I was heavily involved in designing and delivering the UK’s first concurrent stress test and then went on run stress testing globally at one of the world’s biggest banks. So, I’ve seen it from both sides – theory and practice. And I thought it might be useful/interesting to spend a day exploring both sides.
Stress testing – often described as stressful testing for those involved – has the potential to be remarkably powerful, both for regulators and firms. Indeed, the evidence is that firms that were routinely using stress testing as part of their risk management in the run up to the global financial crisis, performed much better. Probably this was not just because of the analytical insights it provides, but perhaps more because of the mind set of those firms – a willingness to look at different states of the world and consider what might go wrong.
How on earth are you supposed to meet all the granular data requirements, get the documentation together and stand back and make sense of the numbers in the timescale that the regulator gives you?
This one-day workshop is about bringing stress testing to life – to see it from both the regulator’s perspective and from the firm’s. For firms new to stress testing, it can often start out as a compliance exercise. How on earth are you supposed to meet all the granular data requirements, get the documentation together and stand back and make sense of the numbers in the timescale that the regulator gives you? And regulators tend to wonder how on earth firms can run themselves without access to the types of models and insights that stress testing provides. Well, there’s truth in both sides.
We will start the day with an overview of stress testing, with a particular focus on the evolution of the concurrent stress tests across the world. And then we will look at what it’s like within a bank, trying to bring everything together. Many people who are involved in stress testing, tend to focus on one particular element, without really understanding the end to end process. Then in the afternoon we’ll look at so-called ‘qualitative’ standards. These are becoming increasing important, as the focus for regulators shifts away from whether firms have enough capital to whether they are good enough at capital planning/stress testing. And finally, we will spend a bit of time looking at future trends/ challenges and how firms can get value from their stress testing infrastructure. This includes issues such as IFRS9.
The workshop will be highly interactive – ideally participants (including me) will learn from one another. I’m looking forward to it!