Passing the stress test – PwC Survey on regulatory stress testing in banks

Regulatory stress testing is moving to the forefront of an ongoing public debate about how banks restore trust and improve their financial health. Banking supervisors around the world are using stress testing as a primary tool in spotting emerging risks and setting what they believe to be adequate bank capital levels. This poses a major challenge for banks, many of whom appear to derive false comfort from their existing capabilities.

Keith Ackerman FS Assurance Partner explains "In order to meet the regulatory demands ahead, regulatory stress testing needs to move from a stand-alone, siloed process to fully integrated with other business and strategic planning activities. The models and controls used to project results under stress need to be as reliable and robust as those used to project or report in a central scenario, with boards demonstrating comprehensive engagement throughout. Banks will need to put in place measures to transition to this new approach - this extent of change will clearly not happen overnight, but no change is not an option".

To assist and assess our client’s capabilities in this process we surveyed 24 of the leading financial institutions from 12 different countries across 5 continents to gauge their level of preparedness for the onset of regulatory stress testing. Passing the stress test shares insights into the current readiness of the participants, participant’s readiness vs. their peers and highlights key challenges and priorities that if tackled in advance should ensure a smoother process.