Stress Testing Solutions 2016, Part 2: Cracking the Solutions Puzzle

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3 April 2016
Cubillas Ding and Dennis Kong

Abstract

With systemically important financial institutions expecting to spend in excess of $75 million annually on regulatory stress testing exercises, the search for viable operating models and solutions continues. Celent evaluates enterprisewide stress testing solutions that enable sustainable future state capabilities.

Banks are facing another year where there will be two big regulatory stress testing exercises: US CCAR/DFAST and EU stress testing. With regular exercises over the past few years, the industry has partially ascended up this Himalayan regulatory mountain since stress tests started at the turn of the decade, yet it is still short of where it could be towards the next summit, especially from an operations/IT perspective.

Anecdotal evidence suggests that systemically important institutions are expecting to spend in excess of $75 million annually in the US on stress testing / CCAR exercises. Extensive and granular requirements for stress testing infrastructure, data, and applications mean that end-to-end solutions with full straight-through processing capabilities are still few and far between. Although it is a top of mind issue, the reality is that, at many firms, the journey to firmwide stress testing as a business-as-usual activity is still in progress.

In the next installment of a report series Stress Testing Solutions 2016, Part 2: Cracking the Solutions Puzzle, Celent examines the vendors and solutions that will enable next-generation stress testing capabilities.

At this juncture, first- and second-generation capabilities of vendor solutions are differentiated along several dimensions:

  • Functional coverage of stress testing information repositories.
  • “Straight-through integration” across various components of the stress testing ecosystem.
  • Analytical framework and capabilities for balance sheet and income projections
  • Level of integration with model development / implementation environments.
  • Ability to align with adjacent areas such as regulatory reporting/submission, budgeting, capital planning, and forecasting applications.

However, market solutions are uneven. Various pieces of the puzzle need to come together to reduce high expenditures and resource consumption associated with regulatory stress testing exercises, and to improve data consistency and delivery across risk, disclosure reporting, and financial management activities.

“In the longer run, there are converging requirements to align finance and risk information and reporting,” says Cubillas Ding, a research director with Celent’s Securities and Investments practice and author of the report. “This is not only accelerated by stress testing regulations, but also other regulatory dynamics around IFRS 9 accounting, Basel III capital/liquidity rules and risk data aggregation, layered with ongoing leverage and cost constraints driving the need for greater efficiency.”

This report is the second installment of a series evaluating the vendors and solutions required to achieve sustainability, consistency and repeatability of risk, capital, and finance organizations’ enterprise stress testing capabilities in the longer-term.

This 60-page report contains 21 figures and 20 tables.

Insight details

Content Type
Reports
Focus
Innovation & Emerging Technology, Risk Management & Compliance
Location
EMEA, North America