In recent times, stress testing has acquired statutory status the world over and in US it has become an integral component of Comprehensive Capital Analysis and Review (CCAR) guidelines, aimed at maintaining fiscal prudence in US banking sector. As per CCAR guidelines, banks should be able to create a response mechanism in case an economic distress were to occur. Hence, it is of utmost importance that results are actionable from Capital Planning and Customer Lifecycle Management (Acquisition and Account management & Collections) perspective.
As the world is crawling out of the global economic crisis, several efforts are underway by regulators as well as international organizations, such as the International Monetary Fund (IMF) and Bank of International Settlements, to institutionalize stress testing as an integral part of bank’s functioning. The intent is to better understand system-wide risks that can trigger widespread economic and financial instability. US Fed, therefore, has mandated an annual Comprehensive Capital Adequacy Review (CCAR) exercise for all banks to submit their capital plans for multiple scenarios (Baseline and Stressed scenarios).