Stress Testing and Scenario Analysis

Brexit provided banks with their first real shock, but the question remains, would your bank pass a stress test? The Bank of England expects all banks and building societies to build their own stress-testing capabilities. Banks will therefore have to develop advanced analytical tools to withstand severe economic shocks such as low growth, high unemployment, high interest rates and emerging risks.

Although banks generally do acknowledge the importance of stress testing, in many cases the stress testing frameworks are still immature.

This one-day workshop guides delegates through the mechanics of conducting a stress test from a credit risk perspective, and describes the various approaches. Through a number of practical group exercises, delegates will discuss different techniques and approaches as well as gain experience through practical examples.

By the end of this workshop, you will:

  • Have a clear understanding of the normal end to end stress testing process
  • Understand some of the technical and analytical skills involved in running a stress test
  • Be able to identify the key modelling methodologies, benefits and options involved in a stress test


You will be provided with a full set of course materials and further practical examples. You will also be welcome to contact the trainers after the session with any further questions or to ask for advice.


Each part of the workshop looks at the practicalities of executing each phase of the Stress Test, explores the evidence that the PRA/EBA are looking for, and discusses what internal management issues can arise.

Stress Scenarios

  • Designing the Internal scenario
  • Interpreting the Regulator’s scenario


Estimating Defaults under Stress

  • Modelling approaches – The pros and cons of various options
  • Validating models – The major issues facing macro-economic model validation
  • What if you don’t have the data? How to handle new portfolios and limited data histories
  • Overlays – Assessing model limitations and the business issues that can affect the outputs; overlaying appropriate expert judgement
  • Governance


Balance & Volume Migrations under Stress

  • Forecasting stock and flow through arrears status
  • Migration matrix-driven versus predicted stock levels-driven
  • Lending Assumptions – Application and Impacts
  • What does the Regulator want to see?
  • Governance


Provisions & Capital Modelling

  • How to derive movements of the key capital metrics (RWA, EL) from default rate prediction and migrations through arrears levels
  • What specific model adaptations are required for stress testing?
  • Sensitivity Analysis – …. what if I change this?
  • Assumptions and evidence – what do the sensitivities mean for model robustness?
  • What does the Regulator want to see?
  • Governance


Further considerations

  • Internal Capabilities – Impact on operations, new business assumptions and other involvement?
  • Interaction with other stress testing stakeholders in the business
  • Talking to the Board
  • Senior management understanding, responsibility and engagement

Programme details:

Registration: 09:00
Start: 09:30
Close: 17:00

Lunch will be served and there will be two 15 minute breaks (mid-morning, mid-afternoon).

* Please note that the workshop sequence and/or subject matter may differ from that described here.  The programme is constantly being updated to embrace new ideas and developments as they evolve.

Trainers use a blend of presentational methods in order to aid a delegate’s understanding of the workshop content.  Wherever relevant the workshop is enhanced through the use of group exercises, role play, and case studies.

Ben O’Brien – Risk Practice Director

Ben’s specialism is credit risk analysis and modelling, with over 18 years’ experience in this field. Since joining Jaywing in 2001, Ben has led analytics teams for a number of clients in the UK, Europe and Australia.


Ben has recent experience of leading stress testing projects, working with the likes of Nationwide, Secure Trust Bank and a newly divested bank. He has a particular talent for explaining with clarity the major themes of a complex piece of analysis.


He has a BSc in Mathematics from University College London.

Take this workshop in-house

If you have five or more delegates who wish to attend this course, it may be more cost effective to run it in-company. To find out more about in-company training, please contact Philip Allen Director of Learning on 0207 216 8843 or