Stress testing principles

The Basel Committee on Banking Supervision has released a consultative document on stress testing principles in which it proposes to replace the existing principles published in May 2009. 

The existing principles were designed to address key weaknesses in stress testing practices that were highlighted by the global financial crisis. Since then, the role of stress testing has rapidly evolved and grown in importance in many jurisdictions. Stress testing is now a critical element of risk management for banks and a core tool for banking supervisors and macroprudential authorities. 

The increasing importance of stress testing, combined with a significant range of approaches adopted by supervisory authorities and banks, highlights the continued need for a set of principles to govern stress testing frameworks. These factors also suggest that the principles themselves should be stated at a sufficiently high level to avoid impeding innovation in this rapidly evolving area. 

During the course of 2017, the Committee undertook a review of its current set of stress testing principles. As a result of this review it proposes to replace the existing set of principles with a new streamlined version that states the principles at a high enough level to be applicable across many banks and jurisdictions and remain relevant as stress testing practices continue to develop. National authorities may wish to use the principles in designing their own stress testing rules, guidance or frameworks. 

The Committee welcomes comments on all aspects of the proposed new principles. Comments should be uploaded here by 23 March 2018. All comments will be published on the website of the Bank for International Settlements (BIS) unless a respondent specifically requests confidential treatment.