Linkages of stress, reverse stress and wind-down

Abstract

Companies are increasing their global footprints every day, in addition to their already complex corporate structures, business models and competition against peer firms. Furthermore, companies have to survive in ever-changing markets facing challenges, such as geopolitical effects, macroeconomics, regulatory and technology developments, to name but a few. Stress testing, reverse stress testing and wind-down planning (collectively referred to as ‘SRW testing’) are probably some of the most vital components of a firm’s management and decision-making processes. Some perform this testing only to comply with reporting requirements while regulatory focus is increasing the need for SRW tests to become more integrated with each other and management of the business. The key to meeting such complex requirements is to understand why SRW testing is beneficial, how it can be achieved and whether sufficient capital has been invested in sophisticated and integrated technology to support and efficiently gain full benefits.