Designing an integrated stress testing framework and combining risk framework for better efficiency

Designing an integrated stress testing framework and combining risk framework for better efficiency

1. Tae, can you please tell the Center for Financial Professionals about yourself and your experience in the industry?

I’m currently serving as a Senior Vice President to lead HSBC’s Review & Challenge for CCAR and PRA stress testing. I have over 19 years of risk and finance experience gained through major banks in US and Asia. I have well-rounded regulatory experience specifically credit risk, Basel I/III, capital planning and risk policy. I have focused particularly on developing and enhancing overall CCAR review and challenge framework for the bank.

2. Why is it important for banks to develop an integrated framework for increasing stress testing efficiency?

I believe integrated framework can provide full potential to shape bank’s business and product strategy through stress testing. Integration is very powerful path to creating efficiency in stress testing to avoid inconsistency in process, narrow focus, and siloed approach.

3. What are the benefits of combining frameworks and how can areas such as op risk, liquidity, market and credit interact for a more integrated process?

A well-integrated stress testing framework can benefit bank’s funding strategy and contingency liquidity planning. Also, it determines idiosyncratic factors for ops risk, crucial investment decisions as well as projecting dynamic balance sheet under stress and optimized risk appetite setting.

4. How do you see the industry evolving over the next 6-12 months and the potential implications of the widely discussed Dodd Frank repeal?

I’m not sure if repealing Dodd Frank is a good idea, but I do expect a lot of smaller bank’s deregulation policies to be executed over the next 6-12months. Dodd Frank is not perfect, but we are a lot better protected now than we were before the Great Recession. I would be very surprised to see major regulation changes to large, complex CCAR banks.