Stress Testing | SCAP, CCAR, DFAST, ECUs
Since the 2007-09 financial crisis, regulators and banks have been using stress testing to evaluate and ensure sufficient capital during unfavorable economic condition, and as a means of restoring confidence in the financial community. Regulations such as Basel II & III, ICAAP, Supervisory Capital Assessment Program (SCAP), Comprehensive Capital Analysis and Review (CCAR), Dodd-Frank Act Stress Tests (DFAST), and the European Central Bank's (ECU) Comprehensive Assessment, as well as others, use models to create what-if scenarios to test capital sufficiency through stress testing.
Supervisors provide regulatory guidance on modeling and whether it is the Bank for International Settlements, the Federal Reserve Board of Governors, the European Central Bank, the Bank of England, or the Prudential Regulation Authority (PRA), regulators expect:
"transparent and repeatable" process
"completeness and accuracy of information"
internal controls around data integrity and models