This two-day course on stress testing provides banking professionals with tools and strategies for meeting new regulatory requirements. The course will cover modeling credit, market, and liquidity risks under stressful scenarios. Attendees will learn how to build internal ratings models, measure concentration risk, and model losses. Working models and examples will be provided to help participants stress test portfolios when returning to their offices. Understanding new Basel III rules and how other banks approach stress testing are key objectives of this in-depth masterclass.
A Bridge Too Far? Risk Appetite, Governance and Corporate Strategy (Whitepaper)
Stress Testing Masterclass Johnk
1. Stress Testing Masterclass
by trueventus
25– 26 June 2012 | Royal Orchid Sheraton Hotel & Towers, Bangkok
The banking industry has been put under a lot of "stress" from the global
financial crisis, the European sovereign debt crisis and regulators across the TESTIMONIALS
planet have responded with a wave of new requirements for banks to meet. “Martin is a passionate and highly intelligent individual with an
outstanding career record in risk management. He works tirelessly
This includes Basel III, new liquidity and capital requirements and stress and is hugely passionate with what he does - it is clear he is in an
elite band for front office risk in Asia especially with handling
testing.
counterparty risk. This is a man who continually raises the bar of
what he does and provides so much value from his vast experience
This program looks at how banks can model funding liquidity and how they and highly technical background. I see him as a mentor and an
can stress test their trading and banking book for adversity from market outstanding individual both personally and professionally.”
shocks. Craig Alderson, VP, Deutsche Bank
“Martin's advice was exceptional. I highly recommend Martin
WHY YOU CANNOT MISS THIS EVENT to persons that are not only seeking depth in his subject
This is an exciting event which takes complicated concepts and delivers new matter, but also to those that want someone that will treat
insight into how to meet the demanding and changing requirements of them with respect.”
banking and risk management. Not only will a clear roadmap be delivered Stephen Rowlison, hired Martin as an Advisor in 2008
to assist risk management teams stress test potential exposures, real life
working examples will be given. “Martin is a detail-oriented manager who was an excellent
colleague to work with, a major team player who contributed
The class will be able to take away working models on CD which can be used substantially to the project, proactively resolving complex
challenges with great insight.”
for stress testing back in the office.
Stephen Buchanan, Senior Risk Executive, Common-
wealth Bank of Australia
WHO SHOULD ATTEND
“A very smart and driven person. Highly recommended.”
The program is ideal for credit risk portfolio teams, regulatory reporting Amanda Steadman, Owner, Movo International London
teams, market risk practitioners, and chief risk officers wanting to under-
stand how to go about stress testing for the banking environment. “Martin is one of those rare and significant people who can
effectively bridge the gaps between business and technology -
a credible visionary who can get things done and a pleasure to
PRE-COURSE QUESTIONNAIRE work with.”
In order to clarify your learning objectives and ensure you get the most out Will Daniels, Special Project Manager, Ulysses Systems
of this training, you will need to complete a Pre-Course Questionnaire
stating your knowledge of the subject, level of experience and other
relevant issues. The course leader will analyse your form to ensure that the
course covers your needs accordingly.
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2. Register Now
T: +603-2711 0701
F: +603-2711 0703
E: johnk@trueventus.com
ABOUT YOUR COURSE LEADER
Martin Davies
Stress Testing Masterclass Martin is a risk and reporting framework
architect who designs risk, pricing and
by trueventus
reporting systems for banks, brokerages and
exchanges. He has more than 15 years’
experience working with treasury, credit and
reporting functions of many banks in Asia. He
also has experience reporting on both the
KEY BENEFITS OF ATTENDING: banking and trading book of financial institu-
• Investigate methods for Basel III stress testing requirements tions and has also been heavily involved in
• Understand how to stress test funding liquidity and ALM Basel II and Basel III regulatory reporting with
banking problems an emphasis in lending and other specific
• Concentration risk and dependency stress tests in credit banking functions. Primarily, he is a banker working in structured
LGD, PD, EAD products but he also has experience with investment, corporate
• Clearly understand what the regulators are looking for finance channels, valuation, credit and counterparty risk. He has a
• Models fully explained with examples wide exposure to investment practices in emerging markets and a
• Banking book and trading book treated strong understanding of local markets risk practices.
• Best practice, what other banks are doing in stress testing
• Concise and clear methods for stress testing credit, market Last year he chaired the Singapore Risk and Accounting Congress,
and liquidity risk Indian Risk Financial Auditors Conference in Delhi and recently he
• Working models on CD worked with a regulator in the Middle East to present risk based
• A complete roadmap for meeting Basel III liquidity require- regulation to a large group of banking participants. Recently he
ments is delivered worked with a tier 1 international bank testing the counterparty risk
• Gain insight into how other banks are carrying out stress measures of PFE, CLU and MTM before they were being used by the
testing accounting department for local regulatory reporting.
Apart from being involved in ensure banks are able to report under
the international accounting standards, Martin also has a good
understanding on local regulatory reporting requirements such as
PROGRAMME SCHEDULE
the MAS 639 position report.
0830 Registration and coffee
In the futures markets Martin has worked closely with a stock
0900 Morning session begins exchange in South East Asia assisting the exchange design instru-
ments for futures trading.
1030 Morning networking break
1300 Networking luncheon In addition to Martin’s work within the capital markets and banking
sector he is a credited trainer for the International Academy of Finan-
1400 Afternoon session begins cial Management on structured finance, risk measurement, corpo-
rate banking and financial reporting.
1530 Afternoon networking break
Key areas of banking include corporate, investment banking (private
1730 Course concludes equity, valuation and structured finance / treasury, liquidity risk,
counterparty and credit risk and regulatory reporting. Martin has a
good knowledge of spot complex markets including FX, Rates,
Commodities and Equities.
He has a sound understanding of project finance, operational risk,
credit risk, capital management, the quantification of exposure
using parametric methods that are able to furnish financial institu-
tions with Value at Risk numbers.
He is skilled in end-to-end process design from the front to the back
office using techniques such as six-sigma and has a background in
information technology which allows him to build bespoke RDBMS
for distributed facilities, reporting, custom dashboards or other
more advanced services.
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3. Register Now
T: +603-2711 0701
F: +603-2711 0703
E: johnk@trueventus.com
DAY 1 DAY 2
The first day treats various important topics around Stress In the second day we look at modelling stress across various risk
Testing; it defines the Stress Testing objective and investigates disciplines in the bank using different models for credit, market
standard models that are being used in banks. risk and funding liquidity. Understand the implications of stress
testing on capital and how stress testing can result in banking
Session One: Capital Game funding diversification to immunise large loss positions.
• Understand the objective of Basel and how risk weighted assets are
supported by capital. Session One: Internal Rating Models and Spreads
• Look at different risk disciplines and how they can be modelled in a Look at methods for building an internal ratings model suitable for
parametric manner Basel III
• Gain insight into the role of Value at Risk and how it supports an • Internal Rating will need to include sovereign risk along with
economic capital perspective for the bank. Why the credit crisis additional counterparty betas
was a gross oversight of the stress testing risk function. • Understand how to stress test in stratified samples different “rating
buckets”
Session Two: Defining Stress Testing • Look at creating a segregated capital model which can address
• Stress testing and back testing outcomes fully defined and top level portfolios of banded counterparties
road map view of what is an expected outcome from a stress test.
• How should management use stress test information and how Session Two: Portfolio Concentration Risk and Pillar II
should stress test results be reported to different groups of • In Basel II Pillar II and Basel III, concentration risk needs to be modelled.
people in the bank will be explained clearly. Understand what is required for modelling correlated defaults
• Who should be involved in a stress testing project and the • Review different methods for measuring concentration risk in different
procedural steps for stress testing is discussed. portfolios
• Understand what variables are used in a stress test for different risk • Learn how to define sensitivities for specific variables in portfolio
disciplines. stress tests. See how to model such sensitivities across different
• Discuss the potential outcomes from a stress test and look the books in the bank.
frequency of stress testing processes.
Session Three: Liquidity Risk, ALM & Liquidity Coverage
Session Three: Basel III Stress Testing Requirements • Basel III introduces a new funding Liquidity standard which requires
• New stress testing rules are being required from the regulators. banks to estimate severe liquidity stress scenario.
Understand how the rules differ across the planet. • Scenarios include : run off of retail deposits, partial loss of wholesale
• Look at how to statistically stress test economic changes in FX funding, contractual outflows, increase in market volatilities,
volatility, prevailing interest rates and many other factors such depresses collateral values, increase haircuts
as GDP growth to modelling shock impacts to both the bank’s • Look at how to build a model to measure the potential outcomes
lending and funding portfolios. that are stipulated over many pages of the Basel III document.
• Review the approach set down and recently executed by the
European Central Bank. What were the outcomes and why did the Session Four: Stress Testing EEPE
stress test result in poor results across the banking community. • New Basel II requirements for stress testing VaR on the trading book
explained.
Session Four: Stress Testing Parameters a stationary model • Look at the models for measuring trading book exposure.
• Review new models for stressing Value at Risk models stochasti-
cally. Understand the five key flaws with VaR and how the entire Session Five: Heterogeneity and non-linearity
value at risk model needs to be moved into a forward looking • Review the common failures with existing models used in credit
perspective. and market risk in a constructive manner.
• Learn about shifts in non-stationary GARCH models and how they • How to model dependency using different approaches copula’s, Monte
can be measured directly. Carlo, modified recursive algorithms, Markov chains and even Bayesian
• Gain insight into the issues with backward looking Value at Risk models for extreme hazard modelling.
models and why growing markets present an issue for banks. • Understand how to model tail dependency in type II loss functions.
Session Five: Methods for back testing Session Six: Capital Implications
• What has been general accepted practice from the banking regulators • Aggregated and dependent loss models may generate very large
on back testing synthetic loss positions that can impact the bank’s capital
• How institutions are able to test the accuracy of their models against negatively.
actual loss experience • Look at how to create diverse capital lines to immunise dependent
• Issues around data paucity and methods for correction volatility models to ensure that stress testing doesn’t result in large
• Implications for capital models from disparate back testing results capital numbers.
• What type of business responses should a stress test result in and
Session Six: Modelling Tails in Operational Risk how should treasury and the risk functions react to stress test results
• Look at LDA, RDCA, sbAMA methods for modelling operational needs serious consideration.
risk exposure. • What involvement is required from the ICAAP function
• Walk through an extreme value theory approach for Basel II and
how it can be applied to operational risk for creating a full Session Seven: Complete working model
parametric exposure of loss • A complete framework for stress testing is proposed taking in: The
• Gain insight into the role of external data and look at how different model, policy, regulatory reporting, trading response, insurance,
banks are implementing this requirement. hedging and cover.
• A brain storming session on modelling potential scenarios for Asia
that will be captured in the training and written up
Statistical software for Modelling Copulas, monte carlo will be
given to the class which can be taken away by the participants
once the program is complete.
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4. REGISTER NOW
John Karras
Stress Testing Masterclass T: +603- 2711 0701
F: +603- 2711 0703
by trueventus 25 – 26 June 2012 | Royal Orchid Sheraton Hotel & Towers, Bangkok - EN 30 E: johnk@trueventus.com
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