Stress Testing
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Stress Testing

Representative Engagements

Regulators globally have turned to stress testing as a bedrock risk-management discipline, and are holding financial institutions to increasingly tougher testing standards. Promontory Stress Testing Solutions go beyond regulatory compliance to help clients improve their risk management and make smart business decisions.

 

We design testing solutions that give institutions answers to fundamental questions — including how to plan for and manage the biggest risks they face. We help transform stress testing from a backward-looking exercise that focuses on rudimentary historical scenarios and basic compliance to a predictive business tool that aids companies in planning for the future.

We provide valuable solutions for organizations at all stages of implementation and in all regulatory regimes. We have helped clients prepare for Comprehensive Capital Analysis Reviews, Dodd-Frank Act stress tests, and capital-plan reviews, as well as stress testing in the European Union and the United Kingdom. Our work ranges from benchmark reviews for companies with substantial experience and well-conceived frameworks, to comprehensive assistance and planning for companies in the initial implementation stages.

Core Risk Management

Promontory Stress Testing Solutions support chief risk officers, chief financial officers, and compliance departments in making stress testing an integral part of risk management, risk-based decision making, and risk-driven planning. Though we emphasize an enterprisewide perspective that provides risk managers a consistent method to assess and report risk across disciplines, the practical applications of stress testing can be as instructive to business-line managers making operational decisions as they are to top executives making strategic ones. Properly conceived and executed, stress testing makes institutions more efficient and better informed about what drives risk at every level of the organization.

Scalable Solutions

Promontory is uniquely qualified to interpret regulatory requirements and industry best practices to provide reviews of stress-testing programs, implement refinements in a phased, cost-effective manner, and deliver comprehensive frameworks. 

Our solutions match the complexity of the institution. We offer: 

  • Governance, framework, and strategy reviews
  • Model validation, benchmarking, and calibration
  • Risk-factor selections and scenario adaptation
  • Model provision and development
  • Outsourced services and reporting

Our services are equally effective as part of a coordinated engagement or as a stand-alone project. Institutions at any stage of implementation can target the assistance they seek. We adapt our response to emphasize practical, custom solutions, rather than hand down a set of prescriptive, predetermined remedies. 

Specific examples of projects include:

  • Performing gap analysis of governance, infrastructure, and analytic capabilities against regulatory requirements and industry best practices 
  • Developing phased implementation plans and providing solutions when gaps are identified 
  • Reviewing governance, policies, and procedures to find weaknesses and fix them
  • Assisting firms in meeting supervisory expectations for a Capital Adequacy Process, including interpretation of specific feedback from supervisors in their annual post-DFAST letter, and in developing remediation plans to address supervisory concerns 
  • Implementing the right level of granularity across business lines and risk types, informed by regulatory insight and risk-materiality assessments 
  • Developing and refining idiosyncratic and hypothetical stress scenarios, including an assessment of plausibility and materiality 
  • Independent model reviews, with validation and calibration where necessary

The Promontory Advantage

Promontory is your best-choice partner providing:

  • Unmatched regulatory expertise and practical experience
  • Solutions that won’t duplicate past efforts
  • Manageable project scope with scaled expense and phased implementation
  • Customized tools and benchmarks
  • Actionable results and insight

Download the Stress Testing Solutions Brochure 

Representative Engagements

  • Performed an independent validation of a European central bank’s system-wide stress testing program in order to reassure markets and satisfy lenders. Evaluated the stress testing framework, methodology and scenarios established by the central bank and analyzed and reviewed the third-party, top-down and bottom-up, system-wide stress testing program, including an analysis of the projections for stress losses and additional capital requirements.
  • Developed a risk framework for extreme-event stress testing to derive point-of-non-viability and developed a strategic plan for reverse stress testing capabilities for resolution planning.
  • Conducted a model validation, benchmarking and calibration of multiple risk models (Stress Testing, VaR, Operational); Advised on the validation of Basel II ICAAP supporting processes.
  • Advised on regulatory expectations regarding stress testing including the bank’s stress testing methodology, and advised on where the methodology differed substantially from regulatory expectations or from practices observed at other financial institutions.
  • Conducted a model validation, benchmarking and calibration of macro scenario model; advised on the development of alternative approaches to address credit concentration risk, risk factor selection; and stress scenario adaptation, developed a custom capital stress testing model.
  • Developed a stress testing framework and analytical process for commercial real estate portfolios including validating the accuracy of asset quality ratings within the bank’s loan portfolio.
  • Reviewed risk stress testing performed on home equity lending portfolio including an assessment of the quality of portfolio risk stress testing performed by management and a comparison of the bank’s risk management practices to industry best practices and regulatory standards.
  • Reviewed margin stress testing models including a high level review of the margin stress testing models.