Capital Markets Examiner School, Providence, RI

Stress Scenario Development

 The process to develop, and maintain , scenarios and assumptions should be broad and logical.

 Does the bank know its limits via some form of reverse stress testing?  What “breaks the bank”

Stress Scenario Development - Assumptions

 Scenarios are the high-level picture of a potential negative event.  Do the assumptions generated for that scenario accurately reflect the event?  Do they assume an integrated stress event – i.e. beyond a pure idiosyncratic event, most exogenously driven stress events may be the result of numerous economic and financial market issues.  Are stresses kept relevant to the bank’s balance sheet and cash flows?  Are both short- and long-term stresses considered?  Is there any analysis of yield curve shift impacts on products in relation to their place along the yield curve?