Stress testing as a method for analyzing banking risks
Importance Risk assessment is an integral part of corporate activities. However, considering the economic volatility, stress testing gains special relevance for the banking sector. Notwithstanding different methodological approaches are actively applied to define the concept of stress testing abroad, the Russian businesses do not use the risk assessment system extensively and broadly. Objectives The research aims at setting methodological guidelines on increasing the stress testing efficiency in commercial banks of the Russian Federation. The research pursues examining theoretical preconditions for stress testing, overviewing scientific approaches and foreign expertise in building the risk management system, reviewing contemporary approaches to stress testing in the Russian banking sector, analyzing disclosure of anti-risk policies the Russian commercial banks adhere to. Methods The research relies upon such methods for banking risk assessment (stress testing) that would be capable of protecting the banking sector from negative implications at the preliminary stage of threats identification. We use foreign regulatory and legislative documents, scientific periodical editions that publish works of the Russian researchers, information from official websites of commercial banks. Results We analyze key concepts, principles, approaches, specifics, practical examples, which underlie the process of organizing and implementing stress tests in banking. We perform a comparative analysis of approaches used to assess banking risks in Russia and abroad. The article puts a special focus on analyzing the stress testing methods applied by the Russian commercial banks. We review annual reports of some commercial banks in order to identify anti-risk activities they undertake in their operations. We conclude that credit and financial institutions pay insufficient attention to the methodological framework of the risk management policy. Conclusions and Relevance We propose a methodological approach to points-based risk assessments. The approach includes methods for assessing liquidity indicators and structure of liabilities. The research is designated for bank employees who specialize in risk assessment and mitigation.