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Stress Testing in the US, UK and the Eurozone: A Market Primer

Stress testing regimes in the United States, United Kingdom and Eurozone mean new regulatory requirements and changes for risk management and banking.

Overview

As new stress testing regulations come on the scene in the United States, the United Kingdom and the Eurozone, risk managers in banking will need to meet new requirements.

Accenture’s market primer provides a comparison of changes across all regions, as well as some facts and figures for banks operating in this new regulatory climate. Guidance around themes relevant to each region rounds out the primer.

 

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Background

In 2014, banking regulatory requirements were revised across multiple regions. The European Central Bank (ECB) and the European Banking Association (EBA) both introduced new stress testing regimes across the European Union.

On the British Isle, the Bank of England’s Prudential Regulatory Authority (PRA) launched new stress tests in the United Kingdom.

Moving westward, banks in the United States increased their participation in the US Comprehensive Capital Analysis and Review (CCAR) regime.

How have these new testing processes played out to date?

Analysis

Accenture’s market primer reviews new regulatory requirements in the European Union, the United Kingdom and the United States, assessing the scale of new exercises and requirements, alongside the implications for participating banks and their risk management functions.

The primer identifies those impacted by the new requirements, assesses the complexity and severity of the regulations, and identifies what may be at stake. The primer does a top line comparison of the requirements in light of the following:

  • Scenarios

  • Timelines

  • Institution Coverage

  • Risk Coverage

  • Balance Sheet Treatment

  • Hurdle Rates

  • Stress Test Results

  • Quantitative Disclosures

  • Qualitative Disclosures

A variety of scenarios and timelines gives further insight into the new stress testing regimes.

Recommendations

The primer concludes with a stress testing workflow that summarizes key steps and provides details around:

  • Stress testing operating model

  • Scenario management

  • Model management

  • Stress test execution

  • Narrative and capital plan

  • Regulatory submission of results

Banks and their risk management functions would be better prepared for the new stress testing regimes.

Authors

Larry Lerner is a managing director, Accenture Digital, and a member of the group’s global leadership team. Based in Washington, he leads Accenture Analytics’ global Financial Services and Risk Analytics teams.

Send email to Larry Lerner. This opens a new window.

 

LinkedIn - Larry Lerner

Parvez Shaikh is a managing director, Accenture Digital. Based in Atlanta, Parvez is a leader in the Risk Analytics practice serving global financial services clients.

Send email to Parvez Shaikh. This opens a new window.

 

LinkedIn - Parvez Shaikh

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