THE FOCAL ROLE OF RISK FUNCTION IN BANKS DURING STRESS TESTING AND EFFECTS ON ORGANIZATIONAL PERFORMANCES
Keywords:
stress testing, risk management, organization, performances, indicatorsAbstract
One of the risk management tools that enable a better understanding of the bank's risk profile and its resistance to internal and external shocks is stress testing. Bank-level stress tests should be incorporated into the bank's risk management system and include the views of all relevant bank employees with their expert judgments. Through effective, soundness and transparent stress testing (which became one of the regulatory requirements in the jurisdiction of each central bank), banks preventively take insight into the key values of its business in case of emergence of unpredictable and extraordinary events. Such stress testing considers creation of adequate infrastructure in banks and upon the efficiency level of established stress testing program depend the realization of main organizational objectives. Regular conducting of stress testing in predefined frequency as well as its realization within internal capital adequacy assessment process and recovery plan processes in banks lead to effective risk management. In operational terms, the key role for stress testing depends upon risk function and its organization in the bank. Also, stress testing outcomes could lead to taking further actions in case of emergency in order to provide continuous and sustainable business on long run.
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