Bank Capital & Liquidity Stress Tests

Overview

Stress-testing serves as a key regulatory risk management tool since the financial crisis. The course begins with a bank's Internal Capital Adequacy Assessment Process (ICAAP) and develops stress scenarios using internal data. Banks must conduct separate stress tests on Interest Rate Risk in the Banking Book (IRRBB) and Liquidity via the Liquidity Coverage Ratio (LCR), illustrated with excerpts from recent reports.

Objectives

Participants will learn to:

• Understand stress testing's role as a risk management tool
• Comprehend its function in defining Capital and Liquid Asset requirements
• Participate in designing and running Stress tests, IRRBB stress tests, and LCR stress scenarios

Suggested Delegates

Risk management, compliance, capital and strategic planning, treasury personnel, management, and supervisory personnel.

Content

Day One covers introduction to retail/commercial banking models, ICAAP context, baseline scenarios, stressed scenario calibration, Merton model applications, and case studies. Day Two addresses Interest Rate Risk in the Banking Book (EVE and NII approaches), liquidity stress testing (LCR components), monitoring tools, and the Internal Liquidity Adequacy Assessment Process (ILAAP).