Incorporating an enterprise wide stress testing framework for a firm wide view across all risk types

Incorporating an enterprise wide stress testing framework for a firm wide view across all risk types

Trevor, can you tell the Center for Financial Professionals’ readers about yourself and your professional experience?

I have specialized in stress testing since 2003, firstly at Abbey National (Santander), then from 2006 to 2015 at UBS and most recently at HSBC.  When I left both my Abbey and UBS roles I was their respective Group Head of Stress Testing and since summer 2015 I have been the Global Head of Wholesale Credit & Market Risk Stress Testing at HSBC.   Before 2003 I spent time as a Market Risk Manager and a Money Broker.
I have a MBA from CASS / UCONN and both the FRM and PRM certificates.   When I’m not at work you’re most likely to find me near a rugby pitch, either watching or coaching.
Can you briefly outline some of the benefits of incorporating an enterprise wide stress testing framework for a firm wide view across all risk types?
An embedded enterprise wide stress testing framework allows firms to understand the full impact of events.  The benefit of having this capability was demonstrated in the run up to where HSBC was able to gain a good understanding of the potential impact of a Brexit vote and put appropriate measures in place prior the referendum.
Should banks be integrating consistent approaches across all risks for risk factor modelling, and why?
Ideally yes, although in practice it is difficult to integrate across different locations, businesses and risk types. Having similar positions getting inconsistent treatments tends to confuse management, increase op risk and make the process of stress testing harder.
How does implementing a holistic risk management framework benefit a financial organisation?
I believe the role of stress testing, and indeed risk more generally, is to help the bank make better decisions.  A siloed risk framework where analysis is piecemeal and not holistic reduces the quality of management information produced and thus reduces the effectiveness of risk as a department.
How do you see the role of the stress testing professional changing over the next 6-12 months?
Many stress testing professionals have been focused on the delivery of regulatory stress tests in recent years, but as banks get better at delivering these exercises their focus should move to running scenarios for themselves not regulators.