Aligning stress testing and strategic planning teams

Aligning stress testing and strategic planning teams

An egg cracking in a clamp under pressure.

By George Lin, Quantitative Modeling Lead at Santander.

Ahead of the Stress Testing USA: CCAR & DFAST Congress, George shares with us his insight into aligning stress testing and strategic planning teams for a more integrated approach to strengthen internal processes. 

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

I am leading a PPNR model development team at Santander. I come from an engineering and economics background and have worked at multiple CCAR banks in model development. Prior to that, I held a variety of roles in that were all related to Finance in some aspect.

At the Stress Testing USA: CCAR & DFAST Congress, you will be delivering on your insights towards aligning stress testing and strategic planning teams. Why do you believe this is a key talking point and what do you think are the crucial things to remember?

Over the previous stress testing cycles, almost all of the large banks have built well organized stress testing practices, however these have remained siloed within an overall stress testing group, whether formally or informally. Regulatory feedback has always been that an integrated stress test is a key component of managing the risk in your business, however that is only one step in a multipart journey of bringing the stress test into BAU.

Can you outline the key challenges that come when aligning the stress testing and planning perspectives? And how can you bring the two together?

Bringing together the stress testing and strategic planning has a great number of challenges that stem from the differing goals of each process. Forecasting in stress testing is inherently conservative, often taking into account the worst-case scenario. For strategic planning, you are looking more at an optimistic base case. For bringing the two together, a clear understanding of the underlying assumptions in each process is necessary to ensure that the projections are comparable.

What are the main organizational and logistical constraints holding institutions back from a more strategic collaboration between the two functions?

The key constraint is organizational, the strategic planning teams and the stress testing teams are often two separate parts of the organization. Aligning the timelines, methodologies, and priorities of these different teams requires buy-in from both the stress testing teams as well as the strategic planning team.

What, in your opinion does the future hold for stress testing professionals, and how can they keep up with the increasing changes in the industry?

The key message is that as stress testing methodology and processes have been maturing, there has been a push to incorporate them into the business as usual processes. This will only increase demand for stress testing professionals who will work at all levels of the organization.

Disclaimer: This article represents the views of the author(s) only, and does not necessarily represent the views or professional advice of Santander.

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