Principles for sound stress testing practices and supervision
The Basel Committee on Banking Supervision has issued Principles for sound stress testing practices and supervision. Stress testing is a critical tool used by banks as part of their internal risk management and capital planning. The guidance sets out a comprehensive set of principles for the sound governance, design and implementation of stress testing programmes at banks. The principles address the weaknesses in such programmes that were highlighted by the financial crisis. Stress testing also is a key component of the supervisory assessment process that assists supervisors in identifying vulnerabilities and evaluate banks' capital adequacy. The principles therefore establish expectations for the role and responsibilities of supervisors when evaluating firms' stress testing practices.
A consultative version of this paper was released in January 2009.