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

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
  • Back testing and Stress Testing
  • Placing Stress Testing under Pillar 2
  • Improving stress-testing practices among financial institutions
  • Concluding Remarks