Stress Testing for Financial Services

WHY ORACLE

ORACLE IS A GLOBAL LEADER

The credit crisis and resulting financial meltdown have highlighted the role of stress testing in complementing traditional risk models for gaining an enterprise-wide view of risk.

The unprecedented regulatory pressure on financial institutions to comply with Pillar I and Pillar II stress testing requirements and the weakness of the traditional siloed approach to stress testing has seen formal, integrated, and holistic stress testing emerge as a key requirement for financial institutions globally.

Oracle Financial Services helps financial institutions comply with Basel II, ICAAP, and stress testing mandates, while gaining a holistic view of their risk exposure.

Oracle Financial Services' solution for stress testing is a part of the Oracle offering for enterprise risk management for financial services.

The Oracle Financial Services solution for stress testing enables financial institutions to quickly and easily assess their risk appetite under extreme scenarios.

PRODUCT DESCRIPTION

Oracle's offering for stress testing is powered by Oracle Financial Services Advanced Analytics Infrastructure, an integrated and comprehensive framework that provides a platform for addressing the stress testing and modeling needs of a financial institution. Oracle's stress testing solution captures the effects of adverse risk events that are not estimated by standard statistical and business models, thus supplementing the modeling process and enabling compliance with the Pillar I and ICAAP stress testing requirements of the Basel II Accord. Additionally, complex scenarios based on historical events such as Black Monday, the Asian financial crisis, and the sub-prime crisis can also be modeled or can be based on expert judgment. The transparent and auditable nature of Oracle's stress testing solution enables financial institutions to demonstrate the robustness of their stress testing and risk management program to regulators. In combination with Oracle Financial Services ICAAP, Oracle Financial Services Advanced Analytics Infrastructure helps financial institutions fulfill their capital adequacy assessment and planning processes.

RELATED OFFERINGS FROM ORACLE

ORACLE FINANCIAL SERVICES DELIVERS KEY BENEFITS

  • Supports model-based as well as deterministic stress tests
  • Enables scenarios to be applied across multiple risk categories such as trading book and banking book
  • Provides easy interface for time referencing of shocks
  • Shares data and definition with regulatory capital engine which helps ensure definitional consistency across Basel program
  • Process risk and control mapping for assessment along different dimensions
  • Leverages investments in existing risk applications
  • Provides scenario library that allows same scenario to be used across multiple risk applications and portfolios
  • Supports stress testing of multiple variables such as macro-economic, idiosyncratic, categorical, and others
  • Offers multiple methods of specifying shocks to variables

FINANCIAL INSTITUTIONS CAN ACHIEVE THESE BENEFITS

  • Basel II compliance - comply with Pillar I and Pillar II (ICAAP) Basel II stress testing requirements
  • Gain a holistic view of risk by assessing the impact of shocks over time on multiple risk areas across both banking and trading books
  • Accurately identify potential risk concentrations across trading and banking portfolios
  • Maintain definitional consistency of scenarios across the organization
  • Compare risk measures such as default rate, charge-off rates, trading loss across baseline, and stressed conditions
  • Rapidly execute and build stress scenario by utilizing library of shocks, common data, and common business definition through a graphical user interface
  • Deploy a transparent and auditable stress testing process that helps reviewers and regulators understand organization-specific risks and their mitigation plans

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