Insights and News /

31 October 2018 3 min read

"It's alive! It's alive!"

James Belmont

James Belmont
Partner, climate risk lead

With tongue firmly in cheek, James Belmont gives his Halloween themed views on Stress Testing before moving away from the Frankenstein’s monster analogy and providing some real insight into avoiding pitfalls and getting business value from your Stress Testing solution:

Yes, it's that time again.  Ambitious, brilliant creators have fashioned monstrous, complex replicas of the real thing, and fired them into glorious operation.  But these creations are not so much replicas as approximations.  Some of the parts are highly refined items with extensive specifications and operation manuals, that have been thoroughly tested.  Other, more troublesome, parts are only crude approximations of reality.  They lack the nuances of the real thing, and as a result, make the overall creation behave in a rather clumsy way.

By now these creations have been cast out to perform their roles, the sun is up, and curious observers, employed by the people, have been watching these creations' every move.  The observers have watched the creations; they have read the manuals for each of the parts; and they have reviewed the testing documentation component by component.  The observers have even constructed their own, competing creations – also crude approximations of the real thing.

The observers will shortly publish their findings.  They will declare that some of the creations malfunctioned, or fell over; that for some the documentation and testing fell short of expectations; or even that the creation was built and operated by the wrong people.

In the meantime, each of the creators can simply wait, and hope that the observers find his or her creation a thing of relative beauty.

For those still making the link between Halloween and stress testing, the creators are banks' stress testing teams; the components are the banks’ stress testing models and processes; the real thing is banks' actual performance under stress; and the observers are the regulators.

For more on Baringa's insights into stress testing, please click here

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