Financial Stress Testing
MIAC Acadametrics allow you to fully anticipate portfolio performance with our Financial Stress Testing services.
With the EBA and Bank of England currently conducting EU-wide and UK specific stress tests, it is a topic high on the agenda for financial institutions who are looking to
- satisfy regulatory requirements for specific scenarios under the EU-wide/UK variant stress tests
- provide third-party, independent benchmarks for various ICAAP numbers or for internal loss provision levels
- portfolio projections or sensitivity analysis to the wider economy
With CAST™, our advanced approach to Capital Adequacy Stress Testing, we aim to fulfil these requirements through the use of a cash flow-based approach to model residential and commercial mortgage loans, credit cards, and other secured and unsecured loans.
Bespoke for each client
We are focused on producing comprehensive, proven methodologies and models in support of your requirements. Using a transparent and independent approach, we enable organisations to embrace a more rigorous methodology to analysing capital adequacy in a range of possible future economic scenarios.
CAST™ has the flexibility to specify macroeconomic scenarios and variables independently or in collaboration with clients. Whilst multiple regulatory driven scenarios have been built-in to the system (including EBA and BoE) our flexible approach allows us to examine the things that matter most to you.
The CAST and loss forecasting framework is based upon:
- Detailed asset segmentation
- Bespoke point in time probability of default (PD), exposure at default (EAD) and loss given default (LGD) models based on analysis of historical performance data (idiosyncratic factors influencing default):
- PD, EAD and LGD models can be built from client specific data or our own proprietary database of loans.
- PD, EAD and LGD models can also be provided by the client if there is a desire to stress previously established parameters.
- Flexible approach to macroeconomic modelling (systemic factors influencing default); utilising the most fit-for-purpose framework:
- Credit Cycle prediction inputs to the overall PD (to transform to future point-in-time or through-the-cycle), or;
- Geographic-specific Macro-Risk-Weightings, reflecting the influence of changing economic conditions on default
- Prescribed macroeconomic scenarios; we utilise the EBA and BoE adverse and baseline scenarios along with internal and client driven scenarios
- Evolution of balances, based on asset characteristics and modelled borrower behaviours
- Projected collateral values along with anticipated recovery rates and timing
- Expected loss modelling and loss provision evolution over time
- Our proprietary cash flow engine, WinOAS™, part of our MIAC Analytics™ suite of pricing and quantitative risk management software tools
- Financial statement projections, incorporating output from CAST modelling and client-based business plans, adapted for modelled macroeconomic scenarios
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