Stress Testing Principle

Risk management of credit institutions is de facto deemed to be very cardinal for controlling and reducing the risks which may be inflicted to these entities in toto. It is also stipulated as a forward-looking approach to resolve per se the potential issues and impediments that may occur in their routine operations. However, one of the effective methods of risk management is de jure specified as the stress testing. The stress testing is prima facia, a complementary apparatus along with the other risk management appliances, where it may ascertain the degree of vulnerability or resistance of credit institutions which can pray to various shocks, ipso facto. Although, we have contemplated that the stress testing cannot accentuate all the drawbacks of the credit institutions, A fortiori. None the less, despite, identifying the certain extant delicacies in the test, it can warn the board of management, about the undesirable and unexpected consequences of risks, wreaked on these entities Quid pro qua Besides, the stress testing may also be utilized to designate the amount of capital, a credit institution or the whole banking network requires to atone pari passu with forfeitures caused by large shocks exacted on them. It goes without saying that, the Principles of stress testing which were previously published in May 2009 by the Basel Committee on Banking Supervision, subsequently, ruminated essentially on the flaws of the stress testing after incident of the world financial crises. In this context, with the expansion of the post-crisis stress testing mechanism, it seems there is a dire need to distinct on certain dictums auxiliary to the axioms propounded in the stress testing principles published in 2009. Thus, the Basel Committee on Banking Supervision updated significantly the principles of the stress testing in October 2018, sine die. The new document contains 9 principles which are judiciously delineated the stress testing framework and can be efficiently bequeathed to the large and international banking networks, thereto. Similarly there is a case for banks supervisors and other relevant financial authorities of various member countries of the Basel Committee on Banking Supervision to optimally employ the test, Sine qua non..