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Our courses are intended for a global audience, with each one being completely customisable to suit the needs of the individuals it is being delivered to.

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Stress Testing

  • Banking and Financial Markets, Corporate Finance, Regulation, Risk and Credit
  • Duration: Two days
  • Information

    The goal of this course is to identify a comprehensive suite of stress tests, calibrate them and then apply and estimate their impact, both individually and jointly, on individual risk areas – e.g. Credit risk, Market risk, and across the whole bank.


    Course Objectives:
    The goal of this course is to identify a comprehensive suite of stress tests, calibrate them and then apply and estimate their impact, both individually and jointly, on individual risk areas – e.g. Credit risk, Market risk, and across the whole bank.

    Existing knowledge
    It is assumed delegates are familiar with the key concepts of standard, non-stressed banking risk management, such as duration, VaR, CVA, etc. (e.g. they have attended the 2-day Banking Risk Management course).
    Learning outcomes

    By the end of the course delegates will be able to:
    • Understand the range of stresses that may be encountered
    • Understand various approaches to calibrating a stress test
    • Understand how to apply a stress test both to individual and multiple risk areas in order to quantify their impact
    • Understand how the stresses may interact with each other and with different risk areas


    Day 1

    Session One

    The importance of stress-testing, Basel II Pillar 2 and the US and other examples

    Credit risk stress testing
    Default of largest exposure, using assumed LGD
    Default of largest exposure using stressed LGD
    Defaults within the largest industry type – what %? Historic figures
    Historic stressed periods
    Knock on effects – e.g. funding cost and availability
    Reverse stress test: given FSDH’s capital, what level of stress would result in failure (using the Basel III ‘point of non-viability’ Capital Adequacy Ratio of 4.5%)?
    Exercise: Estimating the impact on FSDH’s credit portfolio of stressed credit risk

    Session Two

    Macro-economic stresses
    Recession, unemployment, inflation, etc.
    Estimating the level of impact on different risks by using Regression analysis on past stressed periods - estimating the impact on clients’ businesses and on their FSDH internal rating
    Capturing the results on an enterprise-wide basis
    Exercise: Macro-economic stress testing

    Session Three

    Market risk stress testing
    Interest rate risk (T-bills and bonds): what change in yield levels? Using stressed VaR – e.g. Basel 2.5 ‘Revisions to the Market Risk Framework’
    Historic stressed periods – what length of period?
    Curve slope changes, historic examples
    Impact on long/short trading positions, repo
    Exercise: Estimating the impact of government yield rises
    Could the government default? The Russian example
    Contingency planning for a government default
    Interest Rate Risk in the Banking Book (IRRBB) – calibrating then applying the stress
    FX risk sources. What change in FX rates? Historic stressed period changes. What length of period?
    Estimating the impact of a suspension of convertibility

    Day Two

    Session One

    Counterparty credit risk (CCR) stress testing
    Impact of FX rate moves on Forward FX portfolio - stressed Exposure at Default (EAD) CCR
    Largest counterparty defaults
    Impact of Industry sector defaulting
    Stressed Credit risk and CCR together
    Exercise: Stressed CCR for FSDH
    Staff in organisations and their attitudes towards risk – risk and reward.

    Session Two

    Credit Valuation Adjustment (CVA) stress testing
    Stressed CVA – largest counterparty downgrade
    Stressed Credit risk, CCR and CVA together
    Exercise: Stressed CVA for FSDH

    Session Two

    Operational risk stress testing
    Estimating the impact of Head Office closure, IT failures, errors, fraud, etc.
    Exercise: Estimating the impact of Operational risks

    Session Three

    Liquidity risk stress testing
    Loss of largest single funding provider
    Loss of all unsecured wholesale funding
    Deposit run-off – e.g. Basel III Liquidity Coverage Ratio (LCR) %s and historic experience
    T-Bill yield stressed rise
    Exercise: Estimating the impact of Liquidity stress on FSDH

    Session Four

    Political stresses
    Estimating the impact of a change in government personnel, the Russian example
    Estimating the impact of insurgency
    Estimating the impact of corruption

    Session Five

    Climate change stresses
    Estimating the impacts of:
    Food price rises and shortages
    Water shortages
    Fossil fuel use rationing

    Register interest

    As every course we run is tailored to meet the specific needs of each client, we can only provide an estimate after fully understanding your specific requirements. Please complete the form below of call +44 (0) 208 894 4977 to discuss how Taylor Associates can help you.

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