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

by Medy Agami, March 27, 2014
Global

Abstract

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.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

The Opportunity for Stress-Testing Optimization

3

 

Compliance Vs. Optimization

3

Optimization Considerations

6

 

The Basics

6

 

Operational Considerations

6

 

Technological Considerations

9

 

Build or Delegate Technology

10

Moving to Stress-Testing Optimization

11

 

Celent’s Optimization Dimensions

11

 

Compliance, Optimization, and Innovation Defined

13

 

Innovative Technology

14

Conclusion

16

Leveraging Celent’s Expertise

17

 

Support for Financial Institutions

17

 

Support for Vendors

17

Related Celent Research

18

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