Financial Stress Testing
MIAC Analytics allow you to fully anticipate portfolio performance with our Financial Stress Testing services.
With the EBA and Bank of England constantly 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 changes in the performance of the 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, consumer finance, and/or structured finance products.
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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