The International Securities Services Association (ISSA) released the “2021 Review of Critical Functions and Stress Scenarios” from the Recovery, Resolution & Resilience Working Group (WG). It provides an overview of the WG’s key deliverables and achievements in 2021.
The WG was established with the aim of developing a common understanding of critical functions and services among the market participants, i.e. the Global Systemically Important Banks (GSIBs) and Financial Market Infrastructures (FMIs). It identified a set of stress scenarios and testing criteria to foster exchange of information between GSIBs and FMIs in order to assess the impact on the industry which could potentially arise from these scenarios.
Scenario Description
The Working Group has identified several suitable scenarios, which are developed around systemic crisis triggered either by multiple GSIB defaults, sovereign crisis or large trading losses affecting the industry. The following four scenarios are discussed:
Scenario 1: European sovereign debt and corporate crisis
Scenario 2: Default of a GSIB not acting as a firm’s Cash Correspondent Bank
Scenario 3: Default of a GSIB acting as a firm’s Cash Correspondent Bank
Scenario 4: Sudden trading loss affecting many market participants