Stress testing: what it is and how it helps in the COVID-19 crisis

What it is about

Stress testing is a core methodology for risk management and for the soundness of institutions’ financial resources: it makes it possible to identify and quantify the impact of different scenarios on their future financial expectations.

The speakers, José Manuel Desviat, Juan Carlos Estepa and Omar Bairán, discuss how international banks use it in their internal management: to get a global view of the institution’s risk, report to the board and senior management, and assess regulatory solvency. They point out that building a stress testing framework raises challenges in methodologies, risk processes and information systems, and that quantitative models must be backed by expert judgment, a risk culture and sound internal governance.