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Stress testing exercises

Stress testing exercises

Stress testing is an important element in risk management of all financial and non-financial risks. For some risks, such as interest rate risk in the banking book, stress testing is also the main tool for measuring the size of the underlying risk as well as the tool for selecting the most appropriate risk management strategy.

The significance of stress testing also corresponds to a number of regulatory documents dealing with stress testing and the range of activities carried out by banks on the one hand, and national and supranational supervisory authorities on the other hand.

From the regulatory perspective, Stress testing principles issued by the Basel Committee on Banking Supervision in October 2018, and replacing the previous version of the principles from 2009, set out the main principles for stress testing. This new document contains nine principles, always providing a brief description of its substance and additional information specifically for banks and supervisory authorities. It is interesting to note, especially for those who have been following all new regulatory initiatives over the last ten years, that the new document is shorter than its previous versions.

The last year was a year of the EU-wide stress tests. Their detailed results were published on EBA's website in October 2018, both aggregated results and individual bank specific results. The ECB published its analysis covering so-called SSM Banks on its website at the beginning of February 2019.

Although the EU-wide stress tests will not be organised in 2019 as they follow a two-year cycle, several similar exercises will take place. The Czech National Bank organises local stress tests in the first half of 2019 according to the methodology of the EU-wide stress tests. The ECB will carry out stress tests of liquidity risk covering SSM Banks. In addition, banks will run their own internal stress tests. So, it seems almost certain that even in 2019 there will be no shortage of stress (tests).

21-2-2019