#IMF on stress testing, scenario analysis, #banking, and #economy #risk
As we head into the (hopefully) quiet days of August, it is a good time to reflect on the importance of targeted and fine-tuned scenario analysis. The EU stress tests provide the latest example of how and why this activity cannot be subcontracted to sovereign states despite the groundbreaking advances in transparency associated with that exercise. Today, the IMF weighs in on the debate, with some views on what constitutes appropriately rigorous stress testing.
Leaving aside the obviously unfavorable comparisons between their approach and the approach adopted by the EU (and, last year, the US), the message is clear: risk managers and asset allocators need to adopt a more multivariate and rigorous approach to their scenario analysis that blends regulatory, economic, and political trend analysis. As the IMF notes: “Efforts are underway by national supervisors as well as international organizations involved in financial stability, such as the IMF and the Bank of International Settlements, to develop new risk-modeling techniques and stress test methodologies to better identify the risks that trigger widespread economic and financial instability.”
At BCM International Regulatory Analytics, we are we positioned to help financial institutions and their corporate clients think through how these new approaches affect their business models and their risk profiles across multiple vectors. Our Awareness analysis through The Risk Telescope and confidential, bespoke Analytics research positions senior executives to take a more strategic approach to assessing the cross-border multi-disciplinary risk environment in which they operate using our proprietary research methods.
