Stress testing

The significance of stress testing has increased in recent years, consistent with the heightened emphasis placed by the Australian Prudential Regulation Authority (APRA) on the risk management practices of institutions. This focus arises from a range of challenges and risks, such as geopolitical conflicts, climate change, increasing inflation and cyber threats, which may compromise the stability of financial institutions.

Globally we are seeing an increased demand for enhanced stress testing capabilities. This is due to the increasing frequency and scope of regulatory stress testing requirements and significant regulatory concerns with respect to idiosyncratic risk.

With the growing reliance on stress testing, institutions have a prime opportunity to evaluate the effectiveness of their current frameworks, systems and processes. By focusing on key principles and dimensions, institutions can transform their stress testing into a more efficient and effective forward-looking analytical tool, enabling them to utilise insights for strategic decision-making and robust risk management.

Our full summary of local and global stress testing insights highlights the reasons why firms that get ahead on stress testing will be at an advantage and better able to prepare for a longer-term focus on resilience across the financial system.