Although banks and regulators alike have been improving their efforts at stress testing, work remains to be done in enhancing the data and resources available for this exercise, suggests a new report from the Basel Committee on Banking Supervision.
The group of global banking regulators issued a consultation paper on stress testing principles along with a report that examines current supervisory and stress testing practices on Wednesday. The report on current practices finds that, in recent years, both banks and banking regulators have “made significant advances” in both their stress testing methodologies and infrastructure. Yet, it also notes that, “key challenges” remain.
For banks, the list of challenges includes: ensuring adequate resources for stress testing; improving data quality; and enhancing the systems needed to efficiently aggregate data from across the bank for use in stress tests. For regulators, greater co-ordination of stress testing activities is needed, the report says.
The report is based on surveys of both regulators and banks, which includes 54 banks from 24 countries, 20 of which are considered to be global systemically important banks.
The Basel Committee also issued a consultation paper proposing updates to its stress testing principles to incorporate the changes in stress testing practices that have occurred in recent years and to streamline the principles.
“The existing principles were designed to address key weaknesses in stress testing practices that were highlighted by the global financial crisis. Since then, the role of stress testing has rapidly evolved and grown in importance in many jurisdictions,” the report says. “The increasing importance of stress testing, combined with a significant range of approaches adopted by supervisory authorities and banks, highlights the continued need for a set of principles to govern stress testing frameworks.”
Comments on the proposed new principles are due by March 23, 2018.