Stress Testing

CD Financial Technology (CDFT) has implemented a full scale Stress Testing solution (analyses and reporting) covering all aspects of Basel II and revised and enhanced Basel II regulatory frameworks. The solution has been extended to comply with all the requirements included in and implied by the Basel III guidelines. These include elaborate Leverage and Liquidity Ratio testing procedures.

The Stress Testing solution builds on path Monte Carlo simulation capabilities of the R/V Platform. In the analyses all key factors driving revenues and costs of lending, funding and investment activities were simulated over a long planning horizon. The impacts on P/L and the capital ratios were established and conditions that could potentially lead to a requirement for new capital were identified and ranked on a relative scale of probability (Reverse Stress Testing).

Using the same functionality the Leverage Ratio and Liquidity Ratios based on an institution’s current business position and plans can be simulated and feasibility of planned strategies can be evaluated and revised, where needed.