Target Architecture for Stress Testing (Europe)
The Target Architecture for Stress Testing diagram illustrates the building blocks of a sound enterprise-wide stress testing system. The architecture highlights the need for a solution that will facilitate systems and models integration, data flow coordination, and automated reporting.
Figure 1. Target architecture for stress testing
Source: Moody's Analytics
Below is a brief description of six key elements of the architecture:
1. Data integration and cleansing engine, and finance and risk datamart
This data management platform is designed to provide the infrastructure needed to implement a world-class stress testing framework by managing and centralising all data required for the Asset Quality Review and stress testing.
2. Stress testing engine
The stress testing engine enables bankers to perform the calculations required to forecast expected losses, impairments, and other income and losses indicators under stress conditions.
3. Scenario management module
This module enables bankers to define custom scenarios and leverage pre-defined macroeconomic scenarios, including regulatory scenarios.
4. Stress testing workflow module
This module includes automated software and reporting tools designed to streamline the Asset Quality Review and enterprise-wide stress testing process.
5. Model deployment interface
This interface enables bankers to deploy the models required to conduct stress tests.
6. Regulatory reporting engine
Regulatory reporting tools streamline and facilitate regulatory and business reporting by capturing, consolidating, and reporting the data. Ideally, the tools are based on templates that reflect the requirements of each local supervisor.
Notes
1 No reporting guidelines have been published yet.
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Focuses on stress testing in Europe – how banks can build an effective stress testing program, achieve critical business objectives, and ensure regulatory compliance.
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