The Assignment
A mid-level investing bank needed to implement a stress testing framework in accordance with guidelines issued by the central bank.
Our mandate was to develop a collaborative, auditable, repeatable, and transparent stress testing program to meet regulatory expectations, inform on the bank’s risk appetite framework, and improve strategic business decisions.
Our Solution
The solution included the following key features:
1. Stress testing
Our stress testing framework comprised of regular stress tests and scenario analysis with severe macroeconomic global downturn scenarios. We included all material risk types into our stress testing exercises which included portfolio- and country-specific stress tests.
2. ICAAP
Capital plan stress testing was performed to assess the viability of the capital plan in adverse circumstances and to demonstrate a clear link between risk appetite, business strategy, capital plan and stress testing.
3. Scenario Analysis
The stress test framework also consisted of defined macroeconomic downturn scenarios which were based on quantitative models and expert judgments, economic parameters such as foreign exchange rates, interest rates, GDP growth or unemployment rates.
4. Reverse Stress Testing
Reverse stress test were to be performed annually in order to determine the severity of scenarios that would cause the bank to become unviable.
5. Risk Reporting and Measurement
The stress testing framework supported regulatory reporting and external disclosures, as well as internal management reporting, to be presented to senior management as well as to the risk committees, who are responsible for risk and capital management.
Key Takeaways for the Client
A robust stress testing framework that integrated governance, documentation, data quality management, economic scenario development, loss modeling, forecasting, and reporting and incorporated participation of all stakeholders across business units.
The framework was integrated across asset classes and lines of business and enhanced risk management and was customized to the unique strategies and risks of the bank’s portfolio
INTERNATIONAL PARTNERS
NEW YORK & INDIA
Our Partners have a collective experience of several decades in Risk Management, Quantitative Trading and Financial Analytics, across Equities, Fixed Income, Commodities, Currencies and Hybrid Assets, with leading global banks
We bring significant worldwide experience in the following areas:
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Risk Management
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Artificial Intelligence and Neural Networks
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Proprietary Trading and Funds Management
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Derivative Products from Vanilla to the Exotic
- Financial Engineering and Quantitative Finance
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High Frequency Trading
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Portfolio Management & Performance Evaluation
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Alternative Investments – Hedge Funds, Private Equity and Venture Capital
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Multi-Asset classes – Fixed Income, Commodities, Currencies, Equities & Hybrids
Our Partners have worked at the following international banks, hedge funds, energy companies, stock exchanges and strategy consulting firms in the major financial centers of New York, London, Mumbai, Hong Kong, Singapore, Bahrain and Sydney:
UNITED STATES
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Citigroup, New York City
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AIG, New York City
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Bankers Trust, New York City
- Millennium Partners, New York City
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Bank Boston, Boston
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GE Capital, Stamford, Connecticut
- Williams Energy, Tulsa, Oklahoma
ASIA PACIFIC
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Citicorp Investment Bank, India
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Merrill Lynch Capital Markets, Hong Kong
- Hypovereins Bank, Asia Pacific, Singapore
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DBS Bank Head Office, Singapore
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Singapore Mercantile Exchange, Singapore
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Booz.Allen & Hamilton, Sydney
EUROPE & MIDDLE EAST
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Citibank Global Asset Management, London
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Lehman Brothers, London
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Industrial Bank of Japan, London
- Andersen Consulting, London
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Citibank, Bahrain
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Saudi American Bank, Riyadh
Our Partners & Principals were educated at leading universities and institutes: