Stress Testing & Scenario Analysis
Comprehensive guide to regulatory stress testing, scenario design, and capital planning
Stress Testing & Scenario Analysis
Executive Summary
Stress testing has evolved from a peripheral risk management tool to a central pillar of financial institution supervision and internal risk management. The 2008 financial crisis exposed limitations in traditional risk measures and demonstrated the value of forward-looking scenario analysis. Today, regulatory stress testing requirements including CCAR and DFAST in the United States and EBA stress tests in Europe shape capital planning, strategic decisions, and risk appetite frameworks. For practitioners in risk and treasury, scenario design and capital linkage are daily concerns; for consultants advising on stress testing, capital planning, or regulatory readiness, the ability to explain scenarios and integration in clear terms supports credible delivery and value for money. This manual provides comprehensive coverage of stress testing methodologies, scenario design, and capital planning integration.