Less Stressful Stress-Testing: Challenges, Best Practices, and Innovation

Stress-testing should be looked at as a firmwide risk management initiative (enterprise stress-testing) rather than simply compliance with regulation. Celent believes this involves rigorous integration of risk management across the enterprise — giving stress-testing a central role in the boardroom and all verticals of the organization.

In the report Less Stressful Stress-Testing: Challenges, Best Practices, and Innovation, Celent defines stress-testing innovations, and how firms are overcoming regulatory challenges and achieving best practices.

Given that not all financial institutions look or function alike, how can they effectively innovate in implementing the comprehensive and complex challenges that will arise from stress-testing? Celent believes there are two distinct pieces to the stress-testing puzzle. First and foremost is the business/operational piece, and second is the innovation in technology piece. In order to optimize stress-testing from both a regulatory and strategic perspective, the business and technological pieces must be aligned and work in parallel.

“In order to overcome these challenges, firms must augment the culture of the financial institution to incorporate stress-testing results into their day-to-day operations and decision-making,” says Medy Agami, Celent Analyst and author of the report. “Certain technological responses must be achieved in parallel to the cultural shift.”

In the coming years, Celent believes that technology tools in greater demand will include high performance hardware and software, integration services, order and execution management systems, portfolio management systems, front office analytics and predictive tools, collateral optimization tools, and other specialized third party software.