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Have banks made any real, significant progress on stress testing? According to a recent survey of over 100 senior banking officials in Europe and the US, nearly three in 10 (28 percent) have put in place a basic framework for stress testing, but say that stress testing remains a largely manual process.[1] Manual processes increase costs and limit the scalability, risk and scope of what can be done.

Equally important, if your organization is relying on a manually intensive approach to stress testing, keeping up with new demands won’t be easy. SAS industry experts anticipate demands for greater governance over stress testing processes and models, tighter time frames for completing more tests, requirements to audit stress tests, and proof of incremental improvements year over year. Even more challenging is the growing demand for a dynamic view of banks’ capital positions, as well as the use of tests that can respond to changes in the economy, the financial system and more.

As these new demands go mainstream – and they will in the near future – throwing more people at the problem won’t be enough. Not by a long shot. The only way to rise with the tide of stress test demands is to move to a more automated stress testing environment that can rapidly execute stress testing models in a highly iterative, dynamic manner. And this requires an investment in technology. By investing in a high-performance stress testing environment, banks can complete mandatory stress testing much faster and more accurately. As new requirements for dynamic stress testing emerge, they can handle it with relative ease.

A more modern stress testing infrastructure not only aids regulatory compliance, but also supports business lines by providing the scenario and sensitivity analysis needed to make more informed business decisions. As explored in a recent SAS paper, Elements of Business-Driven Stress Testing, banking best practices will increasingly require banks to run business-specific stress tests that make business risks fully transparent to the board, senior management and business managers. To do this, banks must combine business as well as regulatory scenarios based on their observed historical experience and expert judgment.

When all areas of the business participate in such stress tests, an integrated, enterprisewide view of risk emerges. This helps decision makers walk the opportunity-risk tightrope faster and more safely because they can answer complex, business-specific questions and manage risk optimally. As a result, the business can achieve better business outcomes.

There can be both real and perceived barriers to re-engineering and automating your stress testing processes and platform. But forward-looking bank executives are overcoming them, which is why the stress-test automation market is expected to grow at a rapid pace, from an estimated US$32 million in 2013 to $79 million in 2016. A positive outlook for the stress testing industry.

Don’t be left behind. 


Contributor: SAS, RiskMinds Americas Co-sponsor

[1] sas.com/content/dam/SAS/en_us/doc/research2/longitude-stressed-out-107375.pdf 

Read whitepaper “Elements of Business-Driven Stress Testing” http://go.sas.com/ydpmq7 for more on Enterprise Stress Testing.