A recent report from the Basel Committee sets out a range of observed supervisory and bank stress testing practices. It aims to describe and compare these practices and highlight areas of evolution.
The report primarily draws on the results of two surveys completed during 2016:
(i) a survey completed by Basel Committee member authorities (banking supervisors and central banks), which had participation of 31 authorities from 23 countries; and
(ii) a survey completed by 54 respondent banks from across 24 countries, including 20 global systemically important banks (G-SIBs).
Case studies, and other supervisory findings, are also included to supplement the results of the surveys by providing more detail
on specific aspects of stress testing.
It’s divided into two main sections:
(i) a section on supervisory stress testing frameworks (Section 2); and
(ii) a section on bank stress testing frameworks (Section 3).
Key findings
- In recent years, there has been significant advancement and evolution in stress testing methodologies and infrastructure at both banks and authorities.
- Supervisory authorities and central banks continue to devote more resources to enhance the stress testing of regulated institutions, with most supervisory stress testing exercises being carried out on at least an annual basis. This is resulting in significant progress in how the exercises are performed and how they are incorporated into the banking supervision process.
- Banks have been making improvements to their governance structures, with banks’ boards, or delegated committees of boards, taking active roles in reviewing and challenging the results of stress tests, in addition to providing oversight of the overall framework.
- Banks are increasingly looking to leverage the resources dedicated to stress testing frameworks to inform the risk management and strategic planning of the bank. Stress testing frameworks are increasingly integrated into business as usual processes.
- Key challenges that remain for banks include finding and maintaining sufficient resources to run stress testing frameworks, and improving data quality, data granularity and the systems needed to efficiently aggregate data from across the banking group for use in stress tests. For national authorities, greater coordination of stress testing activities across authorities is needed.