In this study we survey practices and supervisory expectations for stress testing (ST), in a credit risk framework for banking book exposures. We introduce and motivate ST; and discuss the function, supervisory requirements and expectations, credit risk parameters, interpretation results
with respect to ST. This includes a typology of ST (uniform testing, risk factor sensitivities, scenario analysis; and historical, statistical and hypothetical scenarios) and procedures for con-ducting ST. We conclude with two simple and practical stress testing examples, one a ratings migration based approach, and the other a top-down ARIMA modeling approach.
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