Capital Stress Testing
Whether your capital stress testing framework is driven by internal planning, regulatory requirements (e.g. CCAR-like processes), or board-level oversight, our independent validations ensure your models are conceptually sound, data-driven, and aligned with your institution’s risk profile.
Our capital stress testing validations offer a comprehensive review of all key components, including:
Scenario Development and Alignment with Risk Profile
We assess your stress scenarios for relevance, severity, and plausibility, ensuring alignment with your institution’s unique risk exposures, business model, and operating environment. Scenarios typically include baseline, adverse, and severely adverse conditions, and may incorporate both macroeconomic and idiosyncratic stress events.
Forecasting Framework and Model Structure
We review the end-to-end capital forecasting engine, including:
Pre-provision net revenue (PPNR) modeling
Credit loss forecasting, including CECL-based integration
Provisioning and allowance impacts
Balance sheet and income statement projections
Capital action assumptions (e.g., dividends, share repurchases, capital raises)
Assumption Review and Data Integrity
We evaluate assumptions related to loan growth or contraction, interest rate sensitivity, fee income volatility, operating expenses, and tax implications. This includes assessment of data sources, historical calibration, and consistency across business lines and scenarios.
Regulatory Capital Metrics and Stress Results
We assess the model's ability to project regulatory capital ratios (e.g., CET1, Tier 1, Total Risk-Based Capital, Leverage Ratio) under stress, including reconciliation with internal capital adequacy targets and regulatory thresholds.
Integration with Capital Planning & Risk Appetite
We ensure that the stress testing framework feeds into your capital planning process, risk appetite statement, and strategic decision-making.
Documentation, Governance & Validation Standards
Our review includes a full assessment of model documentation, change management, and governance processes. We ensure that your institution has a well-documented and supportable framework that meets regulatory guidance such as SR 15-18 (for larger firms), or proportional approaches for community banks and credit unions.
Model Types and Platforms
We work with a wide range of capital stress testing models, including, but not limited to:
Excel-based forecasting tools
Vendor models such as Empyrean, Moody’s ZM, Bancware and ProfitStar
In-house built projection engines
In-house built projection engines
Integrated ALM/CECL/capital stress testing platforms
