Analytic Risk Technology

A Structured Approach To Capital Modelling For Stress TestingRegulators expect banks to be developing robust stress testing processes and not treating them as one-off project exercises under the given scenarios. Building the stress testing capability in firms is a deliberate regulatory intent. The former chairman of the Federal Reserve, Ben Bernanke, said in 2013: "One of the most important aspects of regular stress testing is that it forces banks (and their supervisors) to develop the capacity to quickly and accurately assess the enterprise-wide exposures of their institutions to diverse risks, and to use that information routinely to help ensure that they maintain adequate capital and liquidity". With this in mind, Analytic Risk Technology has developed CUBITT a capital modelling tool to give banks the capability efficiently and controllably to model the effects of many scenarios, for multiple regulators, and internally for management reports and ICAAP. Producing the stressed projections and the regulatory submissions involves pulling together risk and finance data in ways existing reporting systems are not designed to handle. CUBITT is a purpose built tool to help capital analysts efficiently and effectively to produce insight instead of struggling with data sourcing. Model The Effects Of Management Actions And AT1 InstrumentsCUBITT's ability to show the impact on the key capital and leverage ratios of accepting or rejecting the different actions in the capital plan will give management real insight into the scenarios. This is particularly relevant in the presence of questions over AT1 instrument behaviour (CoCo conversion). Understanding exactly what combinations of scenarios and management actions would cause triggers to be reached is a valuable outcome of stress testing analysis, and increasingly demanded by regulators.
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Keywords: finance