The last decade saw a sharp increase in the number of financial crises distressing international financial markets. These crises have also shown a greater tendency to spread to other financial markets, aided by technology and lower barriers to international capital flows. Given the devastating effects of financial crises, their anticipation and management have become among the most pressing problems faced by financial institutions.
Stress-testing offers financial institutions a systematic methodology to help prepare for such financial crises. In this regard, MAS has prepared a paper that aims to help risk managers design and implement a credit stress - testing programme.
While banks that possess quantitative obligor rating and credit portfolio risk management tools can take better advantage of the techniques outlined here, most of the procedures are also applicable to banks that are yet to build such systems.
This paper is being published as an 'MAS Information Paper', to disseminate information and enhance understanding of credit stress -testing. It is neither mandatory nor prescriptive; it is also not the minimum requirement that banks adopting the Internal Ratings Based (IRB) approach under the New Basel Capital Accord are required to meet in respect of stress-testing.
We thank the institutions that responded to our invitation to comment on the paper during the consultation period.
For any clarifications please write to us at:
Specialist Risk Supervision Department
Monetary Authority of Singapore
#23-00, MAS Building,
10 Shenton Way,
Singapore 079117
Alternatively, you may contact us via email at srd@mas.gov.sg.
Enoch Ch'ng
Executive Director
17 March 2003
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