Stress Testing ‘Still a Challenge for Banks’

Stress testing is a given for banks, as regulations and compliance pressures loom. Yet only one in four banks say they’re highly mature at it, report business analytics software specialist SAS and Longitude Research.

A joint study by the two companies shows that four in 10 admit to lingering at early stages of development. Immature stress testing can cause regulatory scrutiny of accuracy and processes. Also, banks incur costs for missed opportunities and wasted resources through laborious, manual operations that fail to reap data for other business initiatives.

The survey of more than 100 senior banking officials across Europe and the US assessed the effects of stress testing within organisations. Only 24% of banks acknowledge making any changes to their strategic decisions as a result of stress testing, although 33% have adapted their institution’s risk appetite in regards to making better business choices.

Respondents noted data issues (35%) and a skills shortage (32%) as the biggest challenges for banks today. They blame data quality and quantity for their struggles with data management, especially data aggregation and consolidation.

“Stress testing is now a fact of life for many banks,” said James Watson, editorial director at Longitude Research. “However, while a sizeable minority have clearly matured in their ability to deal with these tests, there are a significant number of banks that still have their work cut out for them.

“This is especially true when it comes to the next step ahead, using stress testing as a tool to improve the wider management of the business.”

To strengthen stress-testing frameworks, 47% of bankers cited a need for dedicated resources, particularly internal staff, external consultants and IT infrastructure. Other key priorities included fortifying modeling capabilities and improving data quality. Although 41% of banks said past stress tests hadn’t directly influenced business, more than half believe that in two years the tests will help drive strategic decisions.


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