By
Dimitris Chorafas, Independent Finance Consultant, France
Description
The Consultative paper issued by the Basel Committee on Banking Supervision (Basel II) cites the failure of bankers to adequately stress
test exposures as a major reason for bad loans. Sample quotes from this crucial document:
* "Banks should take into consideration potential
future changes in economic conditions when assessing individual credits and their credit portfolios, and should assess their credit risk
exposures under stressful conditions."
* "The recent disturbances in Asia and Russia illustrate how close linkages among emerging markets
under stress conditions and previously undetected correlations between market and credit risks, as well as between those risks and liquidity
risk, can produce widespread losses."
* "Effective stress testing which takes account of business or product cycle effects is one approach
to incorporating into credit decisions a fuller understanding of a borrower's credit risk."
Written for professionals in financial services
with responsibility for IT and risk measurement, management, and modeling, Dimitris Chorafas explains in clear language the testing methodology
necessary for risk control to meet Basel II requirements. Stress testing is the core focus of the book, covering stress analysis and
the use of scenarios, models, drills, benchmarking, backtesting, and post-mortems, creditworthiness, wrong way risk and statistical inference,
probability of default, loss given default and exposure at default, stress testing expected losses, correlation coefficients, and unexpected
losses, stress testing related to market discipline and control action, and pillars 2 and 3 of Basel II.
Audience:
IT Directors, IT Managers, and Risk Mangement Directors in financial services industries worldwide; risk management software application
developers in financial institutions and in software firms providing financial applications and solutions; Consultants providing IT and
risk management services to the financial services industry.
