The Risk Enabled Enterprise® is a two-year research initiative from Chartis, in collaboration with IBM, which explores the enablers of enterprise risk management (ERM). Our research identified four strategic initiatives that firms can use to become “risk-enabled” across organizational structure and process, people and culture, and data and systems. This report, covering enterprise-level stress testing, is the second of four to examine these initiatives and identify best practice practical implementation.
Stress testing is essential for financial institutions having to respond to regulatory demand.
At an enterprise-level, stress testing is more than regulatory compliance for its own sake. Enterprise-level stress testing is a rapidly evolving area within financial institutions, where the approaches and applications are expanding well beyond the risk measures demanded by regulators. With stress testing already established as a fundamental pillar of regulatory oversight, firms continue to invest in streamlining their operations to deliver more comprehensive reporting, and are applying new analytical infrastructures to develop a better understanding of their structural risks and tail risks. Firms are already incorporating stress testing results into operational and strategic decisions, and going forward many expect this analysis to be weighted with growing importance, and to be applied in more business planning decisions.
For this report, Chartis set out to understand the challenges financial institutions are facing in implementing enterprise-level stress testing frameworks and to what extent enterpriselevel stress testing is applied in business decision making. Chartis takes into account both the current state of enterprise-level stress testing as well as expectations for future developments. Our research included a global survey of 68 professionals working in the financial services industry, as well as in-depth follow-up interviews with 22 experts from financial institutions and consulting firms.