Has Stress Testing Finally Become BAU

With regulators appearing more sanguine about bank capitalisation levels, annual stress testing exercises are no longer the high-stakes events they once were. Like many risk management practices introduced after the global financial crisis, stress testing is now completing its transition into a business-as-usual (BAU) activity. Evidence for this can be seen in both the UK’s new hybrid approach to banking sector stress testing and the EBA’s recent comments on the need for more dedicated infrastructure.

Moving to a biennial cycle for full-scale regulatory exercises should free up resources in off years, allowing UK banks to strengthen their methods, explore additional scenarios, and address broader risk management challenges. However, the need to invest in robust, modern infrastructure remains critical - something underscored by the EBA’s recent pronouncements.

In fact, one could argue that infrastructure modernisation is the final step in transforming stress testing from an emergency drill into a fully embedded BAU capability.

So, what defines a modern stress testing infrastructure?

1. Modular deployments

With regulators and internal teams placing greater emphasis on the variety of stress test approaches they can support, banks must be able to adapt their tooling for different exercises - whether they involve distinct trigger events, first- and second-order effects, or varying levels of analytical depth. However, if each methodology requires a separate environment, the ‘hybrid’ approach could risk increasing complexity rather than reducing it.

A modern stress testing solution should therefore allow model components to be dynamically reconfigured and compiled into different execution processes - without requiring users to start from scratch or rebuild the data landscape every time.

2. Runtime flexibility

Stress testing has always operated in a grey area - too iterative and fluid for traditional production systems, yet too complex and critical for end-user computing (EUC) solutions. With exploratory stress testing requiring a high degree of iteration and adaptability, a move towards dedicated infrastructure must not come at the cost of flexibility.

A modern stress testing platform should support experimentation and on-the-fly adjustments, from modifying assumptions, applying post-model adjustments (PMAs), and even switching model versions - all without the constraints of rigid change control processes.

3. Self-documenting

Stress testing isn’t just calculations - it’s about storytelling. While narrative analysis is unlikely to be fully automated anytime soon, too much time is still spent on the manual documentation of inputs, assumptions, and results for both internal and external audiences.

To eliminate the need for manual attestations, a modern stress testing platform should automate the generation of high-quality documentation, clearly mapping the lineage of results in a format that seamlessly integrates with internal governance processes.

Conclusion

As stress testing becomes a fully embedded BAU activity, banks must ensure their infrastructure can support the hybrid approach in an operationally efficient manner. This requires solutions that are modular, flexible, and self-documenting.

TRAC is built to help banks meet these evolving demands, providing the scalability and agility needed for regulatory and internal stress testing, plus a range of structural analytics. Get in touch with our team today to see how TRAC can enhance your stress testing capabilities.