Banks worldwide are requesting more frequent - if more efficient - stress testing -- according to a new survey from Sybase.
The Federal Reserve currently uses annual stress tests to give the markets and regulators a snapshot of the health of the U.S. banking industry. The tests apply to banks with more than $50 billion in assets.
However, Sybase’s survey revealed that 46 percent of North American banks believe stress testing should be conducted once every six months, as opposed to annually, while the majority of EMEA and APAC respondents – 68 percent and 60 percent respectively, would also like to see stress tests carried out at least once every six months. Many would even like stress testing once a quarter, says Neil McGovern, senior director of financial services marketing, Sybase.
The vendor interviewed 185 banks over the last six months, including 50 North American senior managers and C-suite risk management professionals from major capital markets firms, as well as 72 from EMEA, and 63 from APAC.
This year’s Federal Reserve annual stress testing revealed that large U.S. banks performed well, but some banks still have a significant amount of work to do to improve the amount and quality of their capital.
"There appears to be room for improvement at virtually every firm, and at some firms the amount of work needed is still significant," Fed Governor Daniel Tarullo said last week. However, almost all the North American respondents of Sybase’s survey had major reservations over the efficiency of current stress tests.
A combined 96 percent of North American respondents were only “somewhat confident” or even “not at all confident” that stress testing has addressed all the important risks to the banking system, compared to 93 percent in EMEA and 86 percent in APAC.
“People felt there was a lot more stress testing could do to shake out the organization and find out where the exposures were. The implications are that stress testing highlighted some holes in day-to -day risk management practices of organizations and the holistic aspects of stress testing appealed to people as they want a more consolidated view of their exposure across the institution,” he said.
The survey findings were a surprise given that historically, regulator-led demands of institutions aren’t usually greeted with open arms, McGovern notes.
“I was expecting the standard industry grumbling,” he says. Survey respondents did complain about onerous data collection requirements, he pointed out. “But once people got past the pain upfront, the results were seen as being very valuable.”