OSFI.Stress

Question 1

definition of stress testing

Answer 1

a risk management technique used to
evaluate effects on FC of specified changes
corresponding to exceptional but plausible events

Question 2

purpose of stress testing

Answer 2

CCRL (cc ricky liang)
- complement: provide complementary risk perspective to other risk management tools
- capital management: support capital management
- Risk identification and control
- Liquidity management: improve liquidity management

Question 3

describe how stress testing is a key risk management tool for coverage of overland flooding

Answer 3

company won’t have historical data
- identify flood risks using stress testing models
- estimate capital required to support flood risk in diff scenarios
- stress testing could complement publicly available flood data

Question 4

what is senior management accountable for in stress testing?

Answer 4

program’s implementation, management and oversight

Question 5

describe board VS. management responsibilities regarding a stress testing program

Answer 5

BoD:
- ultimate responsibility for integrity of stress testing
- ensure implementation of program by management
- be aware of key findings
Management:
- implement & manage stress testing program
- identify plausible adverse scenario
- dev & implement risk mitigation strategies

Question 6

4 rudimentary初级的 considerations when designing a stress testing program

Answer 6

RUDI
- Range: use a range of perspectives and techniques
- Update: framework should be updated regularly
- Documentation: proper documentation of methodology
- Infrastructure: infrastructure should be flexible if assumptions change

Question 7

considerations in scenario selection

Answer 7

所有业务,非历史情景,严重衰退
- scenarios should cover all important business and product lines
- create non historical scenarios (events that havent happened but could happen)
- severe & sustained downturns (includes large losses, loss of reputation, legal probs)

Question 8

focus areas in response to financial market turmoil

Answer 8

动荡
- risk mitigation
- securitization 证券化and warehousing
- reputational risk
- credit risk and counter-party risk
- concentration risk

Question 9

OSFI’s considerations in assessing stress testing program

Answer 9

(F. CSV) OSFI不喜欢看csv，当评估的时候要考虑 fuck csv
- consistent: whether scenarios chosen are consistent with the institution’s risk appetite
- frequency: is stress testing frequent enough for timely management action
- severe shocks: do scenarios include severe shocks and sustained downturns?
- viability: 可行性收到损害 evaluate scenarios under which viability is compromised

Question 10

describe and contrast scenario with sensitivity testing

Answer 10

Scenario testing:
- significant changes to risk factors
- observe future state including ripple effects & management actions over a longer time horizon
- more complex and comprehensive

Sensitivity testing:
- incremental changes to risk factors
- shock is more immediate & time horizon is shorter
- simpler fewer resources required