Leading banks still grapple with stress testing, says survey from SAS and Longitude Research
Majority still at early stage of development, cite data management and skills shortage as top challenges
Stress testing is a given for banks, as regulations and compliance pressures loom. Yet only one in four banks say they’re highly mature at it. And in a recent study by Longitude Research and business analytics leader SAS, about four in 10 admit to lingering at early stages of development. Immature stress testing can cause regulatory scrutiny of accuracy and processes. Also, banks incur costs for missed opportunities and wasted resources through laborious, manual operations that fail to reap data for other business initiatives.
The in-depth survey of more than 100 senior banking officials across Europe and the US assessed the effects of stress testing within organizations.
Just 24 percent of banks acknowledge making any changes to their strategic decisions as a result of stress testing, although 33 percent have adapted their institution’s risk appetite in regards to making better business choices.
Respondents noted data issues (35 percent) and a skills shortage (32 percent) as the biggest challenges for banks today. They blame data quality and quantity for their struggles with data management, especially data aggregation and consolidation.
“Stress testing is now a fact of life for many banks. However, while a sizeable minority have clearly matured in their ability to deal with these tests, there are a significant number of banks that still have their work cut out for them,” said James Watson, Editorial Director at Longitude Research. "This is especially true when it comes to the next step ahead, using stress testing as a tool to improve the wider management of the business.”
To strengthen stress-testing frameworks, 47 percent of bankers cited a need for dedicated resources, particularly internal staff, external consultants and IT infrastructure. Other key priorities included fortifying modeling capabilities and improving data quality. Although 41 percent of banks said past stress tests hadn’t directly influenced business, more than half believe that in two years the tests will help drive strategic decisions.
How banks can gauge stress-testing maturity
To assess their relative degree of stress-testing maturity, banks can use a new SAS Stress Test Benchmark, developed in cooperation with Longitude Research. In just five minutes, firms can gauge resourcing levels, relative priorities, leadership engagement and investment. And they can compare their responses to those of more than 100 senior risk and finance executives within European and North American banks.
“Stress testing should not just be seen as a compliance exercise,” said Brooke Upton, Global Product Marketing Manager for Risk Management Solutions at SAS. “It’s time to move stress testing from the dreaded manual process to a more automated business-focused opportunity, where high-performance analysis of the data is also used to make better risk decisions.”
Today’s announcement came at The Premier Business Leadership Series event in Las Vegas, a business conference presented by SAS that brings together more than 700 attendees from the public and private sectors to share ideas on critical business issues.
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