The Basel Committee on Banking Supervision today issued the final version of its Stress testing principles.
This document replaces the Committee’s 2009 Principles for sound stress testing practices and supervision, which addressed key weaknesses in stress testing practices as highlighted by the global financial crisis. Since then, the role of stress testing has grown in importance. It is now both a critical element of risk management for banks and a core tool for banking supervisors and macroprudential authorities. The updated principles reflect this evolution. At the same time, the updated principles have been streamlined and set at a high level so that they can be applied across banks and jurisdictions while remaining relevant as stress testing practices continue to evolve.
The principles were first issued for consultation in December 2017, and the comments received were highly supportive of this initiative and helped inform the Committee’s work to revise the 2009 principles.
The principles focus on the core elements of stress testing frameworks. These include the objectives, governance, policies, processes, methodology, resources and documentation that guide stress testing activities and facilitate the use, implementation and oversight of stress testing frameworks. Each principle is followed by a short description of considerations that are equally relevant for banks and authorities.