Demonstrating its continued commitment to help financial services institutions gain a holistic view of risk and comply with the Internal Capital Adequacy Assessment Process (ICAAP) requirements under Pillar 2 of the Basel II accord, Oracle Financial Services Software today announced an integrated, enterprise-wide stress testing solution.
Delivered using Oracle® Reveleus Advanced Analytics Infrastructure, the stress testing solution enables institutions to centrally develop, define and manage scenarios and shocks - and apply them across multiple risk categories including credit risk and market risk - to help provide a transparent and auditable means of performing regulatory and economic capital estimation.
As the recent financial crisis unfolded, institutions and regulators realized that stress testing can no longer be carried out solely within the traditional siloed risk disciplines, but must address the interconnected nature of these risks and their combined impact on the overall capital adequacy of a bank.
The stress testing solution enables institutions to overcome the recently exposed flaws in the traditional, siloed approach to stress testing by enabling banks to share and reuse their existing, calibrated risk models with shocks and stress scenarios that are common and consistent across the entire enterprise, thereby providing a holistic approach for stress testing management.
Integrated Solution Addresses Key Drivers for Stress Testing
Consistent Definition and Management of Stress Scenarios - financial institutions are being forced to respond to regulatory requirements faster and require solutions like Oracle Reveleus stress testing that are automated and can provide data management, model definition and scenario definition in a single, easy-to-use interface.
Regulatory Compliance - the Oracle Reveleus solution enables institutions to carry out comprehensive stress testing to capture the effects of adverse risk events and comply with Basel II requirements. It supports model-based and deterministic stress tests that enable banks to stress the regulatory capital computed as part of the standardized and advanced approaches to regulatory capital estimation.
Enterprise-Wide Risk Management - the stress testing solution leverages the Oracle Reveleus family of unified risk management applications covering market risk, credit risk, operational risk and liquidity risk, to provide a complete and comprehensive analysis of the risk disciplines and the interconnected nature of their impact on capital. This solution provides a truly holistic approach that regulators and senior risk managers are now demanding for managing stress testing and understanding capital adequacy.
Greater Transparency - the stress testing solution helps institutions establish a transparent, auditable stress testing process that helps reviewers and regulators to better understand organization-specific risks and their mitigation plan.
Increased Flexibility - institutions need greater flexibility around defining scenarios as a combination of multiple shocks. The Oracle Reveleus stress testing solution allows multiple shocks to be applied to the same set of variables and can be used to cater to the unique stress testing needs of a bank, including both regulatory and risk management.
"There is unprecedented regulatory pressure on financial institutions to comply with enterprise stress testing requirements and ensure that the lessons of the financial crisis have been learned and will not be repeated," said S. Ramakrishnan, CEO of Oracle Reveleus and Oracle Mantas products, Oracle Financial Services Software. "Stress testing with Oracle Reveleus' analytical applications for risk is a clear example of how our best-in-class applications, unified through a common infrastructure, uniquely enable our customers to rapidly respond to the ever-changing regulatory landscape and safeguard against future crises."
"Modeling and analytics have been applied in silos," according to Guillermo Kopp, Executive Director and Global Research Fellow at TowerGroup. "And silos have allowed the concentration of credit, counterparty, liquidity and systemic risks to go unchecked. The ability to perform enterprise stress testing using an integrated platform and applying data in a consistent and timely manner to analyze the interdependencies between risk types is a big hurdle that banks are seeking to overcome."