Financial institutions must balance the rigours of prepping for “major exams” – such as the scheduled stress tests overseen by the US Federal Reserve, European Banking Authority and Bank of England – with readiness for a “pop quiz” – meaning any ad-hoc risk scenario regulators, the market or executive management may raise. Financial institutions that want to be fully prepared for all scenarios can turn to the new SAS® Stress Testing solution suite.
Heightened expectations for stress testing and scenario analysis make it necessary for banks to look at risk management as not just a one-time cram session, but a yearlong exercise. To add to the pressure of scheduled and expected deadlines, market volatility is always just around the corner. Examples include the conflict in Syria, economic uncertainty in China and the plummeting price of oil. Conscientious banks may proactively stress test their portfolios to determine if they have the right mix of assets or liquidity to handle a range of scenarios or to avoid significant capital depletion. Being prepared to quickly and effectively handle any regulatory or economic scenario is where new stress testing solutions from SAS come into play.
Now generally available to the market, the SAS Stress Testing suite is designed around three comprehensive and complementary offerings: SAS Stress Testing Workbench, SAS Risk Modelling Workbench and SAS Model Implementation Platform.
“With new regulatory requirements and standards, financial institutions are treating their stress-testing capabilities as essential processes rather than one-off compliance exercises,” said Simon Goldsmith, Head of Risk Solutions at SAS UK & Ireland. “In light of this trend, SAS is making a significant investment in new stress testing solutions that will help reduce implementation costs and provide a streamlined stress testing process for managers and analysts alike.”
Each offering in the SAS Stress Testing suite addresses a specific weakness typical of existing stress testing programmes.
1) Stress test orchestration
Regulations require stress testing processes to cover the entire enterprise. Without proper governance and management at an enterprise level, an organisation could spend as much time auditing the integrity of its stress testing results as obtaining the data and calculations.
SAS Stress Testing Workbench makes consolidating results across risk, treasury and finance departments efficient and transparent. Through its web-based environment, analysts can manage the overall stress testing process via a central hub. Analysts can review and execute models, aggregate results, integrate other data sources and apply business, regulatory and accounting rules to financial statements. The interface and controls also provide auditability, transparency and repeatability.
2) Controlled model development
It’s not news that regulatory requirements, markets and portfolios shift over time. This means banks need to continually develop and configure new models. And this requires significant flexibility, collaboration and documentation – difficult at best when dealing with legacy systems and processes. For some financial institutions, it can take a specialised workforce of developers up to a year to develop, calibrate and test these complex models.
SAS Risk Modelling Workbench helps banks establish a sound model-development process that stands up to regulatory scrutiny. Within its visual environment, analysts can develop, validate and calibrate the various risk models needed for stress testing.
3) Efficient model implementation
Regulatory stress testing and real-world market shocks demand that banks always have the ability to rapidly change and execute multiple types and forms of models. It is critical to have a central and controlled environment where models can be implemented quickly and efficiently.
The SAS Model Implementation Platform speeds modelling execution, while providing a linked inventory of risk models. It uses the SAS High‐Performance Risk engine, which delivers fast and efficient integration of a wide range of risk models. Models can run in production without recoding.
“Banks are best positioned for stress testing success through a systematic, cross-functional and repeatable process,” said Vince Calabrese, Chief Financial Officer for F.N.B. Corporation. “Technology like the SAS Stress Testing suite enables banks to effectively manage the significant volume of data the process requires. It also makes it easier to implement complex models and to engage the entire organisation in a more integrated programme.”