06 January 2009

BCBS: Consults on principles for sound stress testing

Drawing on the lessons for banks and supervisors emerging from the crisis, this paper presents sound principles for the governance, design and implementation of stress testing programmes at banks.

The consultation paper presents sound principles for the governance, design and implementation of stress testing programmes at banks and addresses weaknesses in stress testing exposed by the financial crisis.

 

The depth and duration of the financial crisis has led many banks and supervisory authorities to question the adequacy of stress testing practices prior to and during the crisis.

 

The paper proposes that a sound stress testing programme should:

Ø       be directed by the board and senior management,

Ø       provide forward-looking assessments of risk,

Ø       complement information from models and historical data,

Ø       be an integral part of capital and liquidity planning,

Ø       guide the setting of a bank’s risk tolerance, and

Ø       facilitate the development of risk mitigation or contingency plans across a range of stressed conditions.

 

The consultation responds to one of the key risk management actions required by the G20 leaders in their November 2008 Declaration.

 

Deadline for comments is 13 March 2009

 

Press release

Principles

 

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