Simon Baker considers the question of Stress and Scenario Testing in light of the publication by the UK’s Financial Services Authority of Consultation Paper 08/24 on the subject in December 2008. Following the difficulties that banks have experienced as a result of the troubles in the financial markets, regulators are determined to put rules in place requiring much more robust practices in this area. This paper summarises the main requirements and comments further on good practice. It is relevant especially to readers who are in the course of preparing their Internal Capital Adequacy Assessment Process (ICAAP) document for consideration by their Board and supervisors. Many of the principles considered here will have relevance in that discussion. The challenge facing the industry is to develop a meaningful approach to stress and scenario

Author:

Simon Baker - Deputy Head of Consultancy