Basel II Scenario Analysis & Testing

Receiving regulatory approval under the internal rating based approaches and improving risk control strategies requires a sound approach to validating and forecasting regulatory capital estimates and the drivers used to calculate them. Almonde Basel II Scenario Analysis & Testing enable banks to achieve these aims. The component includes the following modules:

 * Back testing
 * Stress testing
 * Scenario Analysis & Forecasting
 * Limits testing

Back testing

The back testing capability enables banks to validate the models used to produce regulatory and other best-practice figures. It compares modeled PD and LGD values with historically observed results on an ongoing basis. Other statistics can also be run as part of the validation process.

The back-testing module calculates rating migration matrices for testing the rating/PD modeling robustness.

Stress testing

Stress testing plays a central role in ensuring that minimum regulatory capital values are realistic. It is a tool for justifying the reasonableness of capital figures to regulators as well as to the banks internal management team.

Stress-tests can be carried out on all of the variables used in calculating regulatory capital: PD, LGD, EAD, credit conversion factor (CCF), maturity (M), rating transition matrices, etc.

Almonde’s Credit Scenario Manager and rule-based scripting tool are available for carrying out basic to very complex testing.

Distinct stress-tests can also be setup and run by: asset class, product type, country, subsidiary…

Almonde offers standard stress testing and one off ad-hoc stress testing. Standard stress-tests are sets of templates setup to cover a wide variety of eventualities These tests are then automatically run periodically, reported on and monitored. One off ad-hoc testing are tests for better understanding testing results and for refining and adding to the standard stress-tests.

PD, LGD and EAD values are sensitive to changes in the variables used in determining them (i.e. turnover for PD). This in turn creates variability in regulatory capital levels. Understanding the nature and magnitude of their impact is important when setting and validating minimum capital requirements.

For testing PD and LGD for sensitivity, the PD and LGD models need to be embedded in the Almonde Basel II solution using Almonde’s toolkit or rule based scripting tool. EAD values can be shocked directly using Almonde Economic Scenario (i.e. market rates…) and Behavior Scenario functionality.

Almonde’s Credit Scenario Manager and rule-based scripting tool are available for carrying out basic to very complex testing.

Distinct stress-tests can also be setup and run by: asset class, product type, country, subsidiary…

Almonde offers standard stress testing and one off ad-hoc stress testing. Standard stress-tests are sets of templates setup to cover a wide variety of eventualities These tests are then automatically run periodically, reported on and monitored. One off ad-hoc testing are tests for better understanding testing results and for refining and adding to the standard stress-tests.

PD, LGD and EAD values are sensitive to changes in the variables used in determining them (i.e. turnover for PD). This in turn creates variability in regulatory capital levels. Understanding the nature and magnitude of their impact is important when setting and validating minimum capital requirements.

For testing PD and LGD for sensitivity, the PD and LGD models need to be embedded in the Almonde Basel II solution using Almonde’s toolkit or rule based scripting tool. EAD values can be shocked directly using Almonde Economic Scenario (i.e. market rates…) and Behavior Scenario functionality.

Scenario Analysis & Forecasting

Scenario analysis and forecasting on regulatory and other best-practice measures are setup and run using Almonde’s:

 *Exposure at Default Calculator: a cash flow and market values modeling and calculation engine covering all asset classes and a wide range of exposures in the
 *banking and trading books
 *- Economic Scenario Manager: forecasting and modeling of market interest rates, macro economic values…
 *- Behavioral Scenario Manager: volume changes modeling ( i.e. in credit card account or line of credit usages…) due to customer behavior; can also be dynamically linked to Economic Scenarios
 *- Business Planning Scenario Manager: provides modeling and generation of new business (i.e. new loans, new credit card accounts…) to be added to the banks current
 *banking and trading book portfolios
 *Forecasting of regulatory capital, expected loss, EAD, PD, LGD, etc. can be carried out on the bank’s current portfolio (i.e. static analysis); or on forecasted portfolios (i.e. dynamic analysis) using the Business Planning Scenario Manager.

Vendor Site:- Almonde