Stress testing is an essential risk management tool used to assess a banking institution’s potential vulnerabilities to stressed business conditions. Effective stress testing enables a banking institution to quantify adverse unexpected outcomes related to a variety of risks and facilitate the decision to put in place risk mitigation plans to safeguard its safety and soundness. This includes providing sufficient amount of financial resources (including capital and liquidity) and implementing other risk mitigation strategies that are required to withstand losses arising from a particular stressed scenario.
This policy document sets out the following:
(a) the Bank’s supervisory expectations and requirements with regards to the governance, coverage of risks, design and implementation of banking institutions’ stress testing programme;
(b) the corresponding basis for the Bank’s supervisory assessment on the safety and soundness of banking institutions, monitoring of risks in the financial system and pre-emptive policy actions; and
(c) reporting requirements on stress testing results to the Bank.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
