Stress Tests are being used for several purposes in the recent past. As a macroprudential surveillance tool, Stress Tests attempt to identify build-up of systemic risk and vulnerabilities in the financial system. The US and the European Union have used Stress Tests as a crisis management tool. The Supervisory or Microprudential Stress Tests assess an individual bank’s health. Stress Tests are also being used as a part of the regulatory capital framework by prescribing the minimum level of capital that a bank must maintain even under stress situations. In addition, banks carry out their own internal stress tests from risk management and strategic perspectives.
The post crisis regulatory reforms have profound implications for risk management and capital planning in banks. Internationally, the supervisory authorities are focusing on adequacy of buffers (viz., capital buffers, leverage buffers, liquidity buffers, systemic-bank buffer and Pillar 2 buffer). This has implications for capital planning and discretionary distributions by banks.
In the Indian context, RBI’s Financial Stability Report (Dec 2016) assesses (i) the performance of the financial sector on functional aspects and (ii) resilience using macro-stress tests through scenarios and single factor sensitivity analyses. The resilience of the Indian banking system is assessed against macroeconomic shocks by using a series of macro-stress tests for credit risk at the system, bank-group and sectoral levels.
In the context of the above developments at the global and Indian level, the Program will focus on practical implementation of frameworks for Stress Testing, risk management and capital planning. Experts from abroad and India will make presentations on topics such as:
Ø Global developments in Micro and Macro Stress Testing
Ø Basel III Capital Buffers and Capital Planning: International Best Practices
Ø Stress Testing of banks in Europe: Recent Developments, Lessons Learned
Ø Stress Testing the Indian Banking System by RBI
Ø How to implement Stress Testing in a Bank: Key Issues and Challenges
ØLiquidity Risk Management: Supervisory expectations