Chrome Consultants

Credit Loss Estimation – Industry Challenges & Solutions for Stress Testing

Programme description & objectives

Programme description & objectives Stress testing is a form of deliberately intense or thorough testing used to determine the stability of a given system or entity. It involves testing beyond normal operational capacity, often to a breaking point, in order to observe the results. With the advancing liberalization and globalization, stress testing and credit risk management are gaining a lot of importance. It is very important for banks today to understand and manage credit risk through a thorough regime of stress testing. Banks today put in a lot of efforts in managing, modeling and structuring credit risk. This topic and the concern to safeguard bank loan portfolios is now regarded as a fundamental component of the banking function. The management of credit risk must be incorporated into the fiber of banks. All financial institutions today need to implement efficient risk-adjusted return on capital methodologies and build cutting-edge portfolio credit risk management systems, both of which can only be premised on a solid stress testing foundation.

Venues, Dates & Cost

VenuesDublinLondonDubaiEdmonton (CAN)Lagos/Abuja
DatesTBDTBDTBDTBDTBD
Cost$3,900 per participant (USD)(=N=)

For Whom

  • All members of staff in Remedial Management & Loan Recovery Department
  • Financial Managers & Accountants
  • Auditors
  • Treasurers
  • Middle-level managers
  • All professionals involved in the global financial services industry (user, regulator or advisor of product/services, marketplace/exchange)

Snapshot of Course Content

Refresher tidbits on Basel I, II, & III

  • Introduction to Basel Norms
  • Brief History
  • Basel Committee – its main goals

Introduction to Stress Testing

  • Introduction to Stress Testing
  • Value at Risk (VaR): Expectations under normal market conditions
  • Stress Testing: What is expected under extreme market conditions
  • What is stress testing?
  • What is financial stress testing?
  • Challenges
  • Scenario tests
  • Sensitivity tests
  • Historical scenarios
  • Hypothetical scenarios

Regulatory Stress Tests

  • Financial Sector Assessment Programs (FSAPs)
  • Stress testing at major financial institutions: Survey results, Bank of International Settlements
  • Challenges to Scenario test
  • From the Value at Risk to Stress Testing
  • Standard Normal Distribution

Stress Testing in the Basel II Framework

  • Lessons learned from a previous crisis
  • Lessons learned from the current crisis
  • Stress-testing and the Basel II Framework after the G20 meeting in London
  • Stress-testing methodologies from the Bank of International Settlements
  • Principles for sound stress testing practices and supervision from the Bank of International Settlements
  • Financial Stress Testing and the Committee of European Banking Supervisors (CEBS)
  • Financial Stress Testing in the USA
  • Final Supervisory Guidance
  • Case Study
  • Supervisory Capital Assessment Program (SCAP)

Stress Testing: Challenges, Difficulties, and Opportunities

  • Model Uncertainty
  • Data Uncertainty
  • Procyclical or Countercyclical?
  • Stress Testing scenarios based on a higher correlation environment
  • Correlation, Correlation Coefficient
  • Basel II – Asset Correlation
  • Problems with Correlation
  • Micro stress tests
  • Macro stress tests
  • Bank of England, Financial Stability Reports
  • Basel II Stress Tests – Weaknesses That Led to the Turmoil

Use of Stress Testing and Integration in Risk Governance

  • Methodologies
  • Scenario selection
  • Testing of specific risks and products

Endogenous and Exogenous Risks

  • Heisenberg’s uncertainty principle and stress testing
  • Backtesting and Stress Testing
  • Placing Stress Testing under Pillar 2
  • Improving stress-testing practices among financial institutions
  • Concluding Remarks