Post-conference workshop 4, March 26, New York
WORKSHOP 4: Stress testing, scenario analysis and CCAR
More and more stress testing has become a strategic tool for risk measurement and management. It involves fundamental parts of the business such as capital planning and allocation, which directly impacts in the shareholder value and risk adjusted profitability. It is in the spotlight as far as regulatory environment is concerned (CCAR/DFAST) and it is of paramount importance for investors and for systemic stability of the real economy.
Learning objectives: After the workshop the participants will be able to build one case for Op Risk stress testing that follows the CCAR/DFAST guidelines and also adds value to the business.
Who will be attending: ORM and capital planning professionals; ORM leads in the business, CFOs.
Led by Lourenco Miranda, Managing Director, Operational Risk Quantification, Capital and CCAR, AIG
8:30 Registration and breakfast
9:00 Objectives and basic ingredients for stress testing operational risk
- Building the case for a stress testing framework and model
- Situation appraisal: why does the industry need a stress testing framework for Operational Risk and why it is so important now?
- What are we stressing and how? Where is the data? When the processes outweigh the outcomes.
- Review of the regulatory playfield.
At this point we will have identified the basic ingredients and the appropriate tools: we'll know why, how and what we need to do.
10:30 Morning coffee break
11:00 Identify the components of the stress testing framework: macro-economic factor model, scenario analysis etc...
- Identifying the tools: quantitative and qualitative (How to make Stress Testing a fun and useful process)
- Quantitative tools appropriate on a case by case basis (no one size fits all)
At this point we will have a prototype framework ready to be tested. What are the relevant points to consider?
1:30 Putting all together: the practicalities of stress testing. The limitations and pitfalls: how to identify them, understand and avoid them?
- Adding qualitative aspects - it has to make sense to Senior Managers, they must be able to explain the results and the variances and be useful for Capital Planning. What are the relevant questions and the potential answers?
- What are the so called idiosyncratic risks and how to use them? E.g. emerging risks, cyber-security, etc.
- How to treat and incorporate legal reserves?
At this point we will have a model, a framework and documentation ready for validation and to be submitted to your Board, Regulators. Now your Senior Managers are ready to answer questions from all stakeholders.
3:00 Afternoon coffee break
3:30 Using the stress testing framework: what are the benefits for the firm and lessons learned
- Using the model and the framework - what is that you should be looking for?
- How to make the whole process useful? Value addition to the business and to the Firm as a whole.
- Great you passed the test: now what? Start all over again because as the sun will rise, there will be more stress testing in 2016.
Review of the day, open for debate and Q&A.
5:00 End of workshop
Dr. Lourenco Miranda is currently Managing Director within the Enterprise Risk Management group at AIG responsible for Operational Risk Intelligence, Economic Capital, CCAR, Scenario Analysis, and Risk Events collection. Formerly, Dr. Miranda was Head of Quantitative Analytics at US Bancorp. In that capacity, Dr. Miranda was responsible for the calculation of Operational Risk Capital and CCAR; and for the risk oversight, model development for capital markets products (fixed income, FX, credit, MSR) including counterparty risk modelling (CVA family). Before that, Dr. Miranda held different positions in internationally active Financial Institutions like the IFC/World Bank (responsible for risk advisory in more than 30 countries and jurisdictions) and ABN AMRO (head of integrated risk modelling). In the academic arena, Dr. Miranda is a published author, having held different positions in academic institutions in Brazil, Netherlands, Russia and the US. Currently, he is visiting Professor of the School of Mathematics of the University of Minnesota.