Stress Testing for Effective Risk Management

This POV paper explains how stress testing provides a framework for effective risk management, capital adequacy and strategic planning, and does so while ensuring that risk positions fall within acceptable institutional parameters.

Key takeaways:

• Stress testing is a necessity for financial institutions not only to satisfy regulators, but to protect institutions and their customers
• It should be an ongoing, integral part of every financial institution’s risk management self-assessment
• Financial institutions should have a robust plan and adequate capital in the case of an economic downturn