It enables a bank in forward looking assessment of risks, which overcomes the limitations of statistical risk measures or models based on historical data and assumptions. It helps the senior management in understanding the condition of the bank in the stressed time.
Stress testing outputs are used by a bank in decision making process in terms of potential actions like risk mitigation techniques, contingency plans, capital and liquidity management in stressed conditions, etc. It focuses on the impact of credit risk, liquidity risk, market risk etc. in adverse situations both at the bank level and at the systemic level. Stress tests measure the resilience of the individual financial institutions as well as the financial systems as a whole against possible extreme volatilities in the macro economic parameters in any country's financial system.
Stress testing forms an integral part of the internal capital adequacy assessment process (ICAAP), which requires banks to undertake rigorous, forward looking stress testing that identifies severe events or changes in market conditions that could adversely impact the bank. The main objectives of stress testing includes assistance in risk identification and control, complementing other risk management tools, improving capital and liquidity planning, and thereby facilitating the business decision-making. Stress tests plays an important role in the communication of risk within the bank and external communication with supervisors to provide support for internal and regulatory capital adequacy assessments Indian Banks perform the stress tests at least at half yearly intervals.
This story is from the April 2022 edition of BANKING FINANCE.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the April 2022 edition of BANKING FINANCE.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
The Future Of Banking: Voice Banking
The Banking industry has undergone a series of transformative changes over the years, driven by technological advancements. One of the most exciting and disruptive innovations in the financial sector is voice Banking.
RBI CIRCULAR
1. Please refer to paragraph 4 of Statement on Developmental and Regulatory Policies issued as a part of the Bi-monthly Monetary Policy Statement for 2024-25 dated April 05, 2024 read with Paragraph 1.10 of the 'Operating Guidelines for Small Finance Banks' dated October 6, 2016.
UNLOCKING SOCIAL IMPACT: THE RISE OF SOCIAL BONDS IN SUSTAINABLE INVESTING
In the context of financial markets, social bonds refer to a specific type of bond issued by governments, municipalities, or organizations to raise capital for projects with social or environmental benefits.
MODERN AND CREATIVE WAYS OF MONEY LAUNDERING: A SNEAK PEEK IN MODUS OPERANDI
Every year, an astonishing $800 billion to $2 trillion circulates through the global economy as laundered money, making up 2-5% of global GDP.
TRANSFORMING FINANCE: UNDERSTANDING THE EVOLUTION OF FINTECH INNOVATION AND REGULATORY FRAMEWORKS
The constantly evolving field of financial technology, or FinTech, has brought about a significant transformation of the world's financial scene.
FINTECHS: ISSUES AND CHALLENGES
Fintech is a combination of two words \"financial\" and \"technology\".
WHY CBDC WHEN WE HAVE UPL..??
The world is rushing to develop Cash 2.0. Globally, central banks are in pursuit of Central Bank Digital Currency (CBDC) projects.
Insolvency's Group Tangle
The Insolvency and Bankruptcy Code (IBC) has been around for nearly seven years, and in these seven years, it has been amended six times. However, it is yet to address a significant concern: group insolvencies.
Why mot retirees don't find refuge in reverse mortgage
It would be the deal of the century, or so Andre-Francois Raffray could have thought. The Frenchman had in December 1965 stuck a deal with 90-year-old Jeanne Calment to pay her 2,500 francs every month until she died.
The rise and rise of mutual funds
It is curious that the cake cutting and champagne popping that accompanied the Nifty's new lifetime high in recent weeks, was not in evidence when the mutual fund industry topped Rs. 50 lakh crore in assets.