Stress Testing and Capital Assessment
Key Components for Managing Risk
Stress testing and loss forecasting are key components for managing any risk management program. As regulators are using stress testing as a diligent tool for measuring a bank’s viability, it can also be a source of competitive advantage for banks as they look more closely at the impact of different levers in their credit risk strategies.
Leverage Analytics and Industry Expertise
Experian understands the importance of measuring capital adequacy, stress testing and loss reserve estimation reporting and brings an extensive background in modeling, banking, risk management and simulation to our clients.
We develop loss forecasting models using a combination of state of the art analytics and advanced statistical tools, and can evaluate and report the impact of the bank’s stress scenarios on the credit risk components – probability of default (PD), exposure at default (ED), and loss given default (LGD).
Experian has the unique ability to parallel the Federal Reserve's stress scenario methodology or design your own stress tests, linking the loss forecasting models and process in with the Basel metrics calculated in line with the requirements of the Advanced Internal Ratings Based (AIRB) approach for multiple portfolios, and with any other regulatory requirements.
Balance Business and Regulatory Drivers
It is imperative for banks to understand the results of a stress test and evaluate strategic initiatives to help offset the potential impact by optimizing risk-weighted assets and capital usage. Our group of strategy consultants provides valuable insights into the likely implications of plausible economic stresses within the institution’s portfolios, and can serve as a useful benchmark for comparing the outcomes of other approaches. We can help to balance a complex array of business and regulatory drivers at the strategic and operational levels.
Related Banking Regulation Requirements
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