constructing a model platform to support bank stress testing

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Presented by:

Presenter(s):Jeff Kutler, Editor-in-Chief, Risk IntelligenceGlobal Association of Risk Professionals (GARP)

Tom KimnerDirector, Global Risk Operations SAS

September 22, 2015

GARP Webcast

Constructing a Model Platform to Support Bank Stress Testing

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Jeff Kutler, Editor-in-Chief, Risk IntelligenceGlobal Association of Risk Professionals (GARP)

Jeffrey Kutler is Editor-in-Chief of Risk Intelligence at the Global Association of Risk Professionals (GARP). He joined GARP in December of 2008 from Institutional Investor, where he served as assistant managing editor, focusing primarily on banking and technology, from 2000-2005 and as U.S. editor from 2007-2008. Between those stints, Kutler was editor-in-chief of the weekly Securities Industry News. Before 2000, he worked for about 20 years for the daily newspaper American Banker and some of its affiliates, rising to the position of executive editor. He continues to contribute to Institutional Investor on technology and risk management topics.

Jeff Kutler, Editor-in-Chief, Risk IntelligenceGlobal Association of Risk Professionals (GARP)

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Thomas Kimner, Director, Global Risk Operations, SAS

Mr. Kimner leads the Global Risk Operations area within the newly formed Risk Research and Quantitative Solutions division at SAS. He is currently responsible for shaping the overall vision for risk management solutions and products as well as coordinating risk priorities on a global basis. In addition, Mr. Kimner has responsibility for the division’s operational functions as well as guiding market and customer messaging and communication.

Prior to joining SAS, Mr. Kimner spent the bulk of his career at Fannie Mae, where he served in various Senior Management roles spearheading corporate initiatives to more effectively manage credit risk, analyze portfolio performance, and establish business intelligence solutions in support of risk and financial reporting. He has also worked at a leading Washington, DC policy and consultancy institute and a financial housing regulatory agency. Mr. Kimner graduated Summa Cum Laude with a Bachelor of Science degree in Finance and Magna Cum Laude with a Bachelor of Arts degree in Economics from the University of Maryland. He earned his Master of Science in Computer Systems Management from the University of Maryland University College.

Mr. Kimner has testified before the Financial Services Committee of the U.S. House of Representatives and regularly speaks at Risk Conferences and other SAS hosted events.

Thomas Kimner, Director, Global Risk Operations SAS

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GARP/SAS Testing Survey: Background and Overview

• “A View from the Trenches”

• Snapshot of current industry responses

• Assessment of maturity levels and evolving best practices

• 389 responses, globally distributed

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41%

15%13%

10%

21%

Commercial bank Retail Bank Investment Bank Asset Manager All of the above

Responses by Industry

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SIFIs/Not SIFIs?

44%

44%

12%

Yes

No

I don't know

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Assets Under Management

30%

23%9%

8%

6%

23%

<10B $10B-49.99B $50B – 99.99B $100B – 249.99B $250B – 499.99B $500B+

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Top Countries Represented

Top Countries

Country Percent Count

United States 21.30% 83

Canada 8.00% 31

India 7.50% 29

United Kingdom 6.90% 27

Switzerland 3.10% 12

China 2.60% 10

Hong Kong 2.60% 10

Nigeria 2.60% 10

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Respondent’s Roles 

47%

53% Management (Manage the stress testing process)

Stress Testing Role (Actively conduct stress testing processes)

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Respondent’s Functions 

25%

2%6%

21%7%

4%10%

14%

4% 7%

Enterprise Risk Management Compliance

Portfolio Management Credit Risk

Finance Treasury

Risk Control Market Risk

Operational Risk Other

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Who is responsible for Stress Testing?

7%14%

63%

10%7%

CEO

CFO

CRO

Business Unit Head

Other (please specify)

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Staff Dedicated to Stress Testing? 

3%

55%17%

8%8%

10%

0

1-10

11-25

26-50

51-100

100+

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Top Line Conclusions

• Institutions on the whole are rising to the challenges

• Significant progress in data, modeling and scenario management

• Performance gaps in technology and reporting

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Progress reported over the last 24 months…

Little Some Significant

Stress Test Modeling 24% 36% 29%

Data Management 19% 46% 25%

Scenario Management 26% 40% 21%

Little Some No Progress

Reporting 55% 28% 12%

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Adequacy of Resources

On key components of stress testing, practitioners perceive technology as lagging people and expertise

Well resourcedAdequately resourced Some gaps Major gaps

Data ManagementPeople 13% 49% 29% 6%Expertise 12% 45% 34% 8%Technology 8% 34% 40% 15%

Modeling        People 12% 56% 28% 4%Expertise 11% 58% 26% 5%Technology 11% 39% 36% 12%

Scenario Management        People 9% 54% 28% 6%Expertise 10% 48% 31% 8%Technology 8% 37% 37% 14%

Reporting & Analysis        People 10% 55% 28% 5%Expertise 9% 54% 29% 6%Technology 8% 37% 38% 13%

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Maturity - Data

Highly Mature Mature Immature Highly Immature No Opinion

Data Integration 8.2 % 37.8 % 39.8 % 12.6 % 1.5 %

Data Quality 9.3 % 45.0 % 33.7 % 10.5 % 1.5 %

Data Governance 6.7 % 43.7 % 37.0 % 10.3 % 2.3 %

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Maturity - Models

Highly Mature Mature Immature Highly

Immature No Opinion

Model Inventory 6.8 % 49.3 % 29.5 % 8.2 % 6.3 %

Model Development 7.7 % 49.3 % 34.8 % 6.3 % 1.9 %

Model Validation 10.6 % 42.0 % 36.2 % 9.7 % 1.4 %

Model Implementation 9.2 % 52.7 % 30.4 % 4.8 % 2.9 %

Model Execution 7.7 % 51.2 % 30.4 % 6.3 % 4.3 %

Model Governance 8.2 % 39.1 % 38.2 % 9.7 % 4.8 %

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Maturity - Reporting

Highly Mature Mature Immature Highly

Immature No Opinion

Provides linkages across risk model data, macroeconomic data and balance sheet data

5.1 % 39.1 % 39.1 % 14.1 % 2.6 %

Reports across product lines, business and legal entities 9.0 % 47.0 % 31.4 % 9.5 % 3.1 %

Translates into forward looking financials 5.4 % 40.1 % 38.0 % 12.6 % 3.9 %

Clear documentation is produced as part of the reporting process 6.4 % 47.0 % 32.4 % 10.5 % 3.6 %

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Resources – Data Management

Strongly agree

(we are well resourced)

Agree(we are

adequately resourced)

Disagree(there are

some gaps here)

Strongly disagree(there are

major gaps here)

No opinion

Our people have the right capabilities 13.1 % 49.4 % 29.3 % 6.4 % 1.8 %

We have enough expertise to support this 11.6 % 44.7 % 34.4 % 7.5 % 1.8 %

Our technology has the right capabilities 8.2 % 34.2 % 39.8 % 15.2 % 2.6 %

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Resources – Models

Strongly agree

(we are well resourced)

Agree(we are

adequately resourced)

Disagree(there are

some gaps here)

Strongly disagree(there are

major gaps here)

No opinion

Our people have the right capabilities 12.1 % 56.0 % 27.5 % 3.9 % 0.5 %

We have enough expertise to support this 11.1 % 58.0 % 25.6 % 4.8 % 0.5 %

Our technology has the right capabilities 10.6 % 38.6 % 36.2 % 11.6 % 2.9 %

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Resources - Reporting 

Strongly agree

(we are well resourced)

Agree(we are

adequately resourced)

Disagree(there are

some gaps here)

Strongly disagree(there are

major gaps here)

No opinion

Our people have the right capabilities 9.5 % 55.0 % 28.3 % 5.1 % 2.1 %

We have enough expertise to support this 9.3 % 53.5 % 29.0 % 5.9 % 2.3 %

Our technology has the right capabilities 8.2 % 37.0 % 38.3 % 12.9 % 3.6 %

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Stress Testing Framework

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Key Areas of Readiness for Future Changes in Stress Testing

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Top Line Conclusions

• Institutions on the whole are rising to the challenges

• Significant progress in data, modeling and scenario management

• Performance gaps in technology and reporting

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About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk management practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and corporations from more than 195 countries. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive professional education and training for professionals of all levels. www.garp.org.

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