Identifying the relevant risk factors and their interdependence is central to understanding the risk exposures and vulnerabilities of a financial institution. It is needed for risk management, solvency assessment and stress testing. We assemble a unique dataset of risk factors relevant for...

Operational risk is fundamentally different from all other risks taken on by a bank. It is embedded in every activity and product of an institution, and in contrast to the conventional financial risks (e.g. market, credit) is harder to measure and model, and not straight forwardly eliminated...

Stress testing served us well as a crisis management tool, and we see it applied increasingly to peacetime oversight of banks and banking systems. Stress testing is rapidly become the dominant supervisory tool on both sides of the Atlantic. Yet the objectives and certainly the conditions are...

Stress testing has become a tool of choice in banking for risk managers and regulators alike, and it is used more widely as a way to assess resilience to severely adverse events. Yet even the most creative risk manager would have been challenged to design a scenario that would have adequately...

We trace the development of model risk management in U.S. banking against the backdrop of the growing importance of complex financial models in banks, the recognition of model risk, the emergence of model validation as a response to model risk, and the contribution of failures in model risk...

A fundamental conclusion drawn from the recent financial crisis is that the supervision and regulation of financial firms in isolation - a purely microprudential perspective - are not sufficient to maintain financial stability. Rather, a macroprudential perspective, which evaluates and responds...

A fundamental conclusion drawn from the recent financial crisis is that the supervision and regulation of financial firms in isolation — a purely microprudential perspective — are not sufficient to maintain financial stability. Rather, a macroprudential perspective, which evaluates and...

How much capital and liquidity does a bank need – to support its risk taking activities? During the recent (and still ongoing) financial crisis, answers to this question using standard approaches, e.g. regulatory capital ratios, were no longer credible, and thus broad-based supervisory stress...

A defining difference of macro-style stress testing is the explicit consideration of profitability dynamics in the stress scenario. Traditional stress testing had focused almost exclusively on losses only, but a complete assessment of capital adequacy under stress must take into account not just...

A fundamental conclusion drawn from the recent financial crisis is that the supervision and regulation of financial firms in isolation - a purely microprudential perspective - are not sufficient to maintain financial stability. Rather, a macroprudential perspective, which evaluates and responds...