READING 67: GOVERNANCE OVER STRESS TESTING

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https://www.melonsblog.cn/2020/02/reading-67-governance-over-stress.html#more

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Validation and independent review of stress tests includes a review of both the qualitative and judgmental aspects of stress tests. Validation and independent review of stress tests should also use expert-based judgment, test data during nonstress periods, and communication of stress test results to all stress test users.

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An internal audit should review the manner in which stress testing efficiencies are identified, tracked, and remedied. An internal audit should assess not only the stress testing activities, but also the staff involved in stress testing activities. An internal audit does not need to independently assess each stress test used. The internal audit function needs to be independent and objective.

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Institutions use reverse stress tests that “break the bank” in order to assess the events that are outside of normal business expectations and could threaten the institution’s viability.