Aligning policies for effective governance of the process to incorporate stress testing into wider frameworks

Aligning policies for effective governance of the process to incorporate stress testing into wider frameworks

By Lingling Xu, CCAR Audit Head / Director, Credit Suisse

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I have been working in risk and finance control functions in various large financial institutions including JP Morgan, Citibank, American Express and currently at Credit Suisse. My main professional focus is regulatory capital, specifically Basel and CCAR/Capital planning space.

What, for you, are the benefits of attending a Congress like the ‘Stress Testing USA Congress’?

To gain industry perspective on the emerging topics while getting chance to network with peer bank colleagues

From an industry perspective, what are the benefits of linking BAU to risk appetite and to liquidity stress testing?

To utilize risk appetite framework governing BAU risk taking activities and other regulatory requirements (such as: Capital and liquidity stress testing) will make the process more efficient and effective, which translates into cost saving and better business performance.

Why is it important to manage risk in a holistic view?

Given the increasing complexity of financial service industry, it is critical to manage risk in a holistic view. One single event could manifest itself quickly into multiple risks across the firm and various lines of businesses. More integrated risk management framework will be able to address the risks in a holistic view.

When incorporating stress testing into wider frameworks, what are the benefits of doing so?

In short answer, it increases the efficiency and effectiveness. By incorporating stress testing into BAU activities, the business can better utilize the stress testing capabilities to its daily risk management and decision making process. Meanwhile it saves the costs of running stand-alone stress testing process for the purpose of satisfying regulatory requirements only.

How do you see the stress testing regulations evolving over the next 6-12 months?

The FRB is trying to make the regulatory capital regulations more risk sensitive and firm specific while consciously reducing administrative burdens for mid/small size noncomplex  banks. The ongoing rule making efforts in Stress capital buffer would further integrate BAU capital requirements with capital stress testing.

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