Stress testing / Liquidity and funding risk [12]

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Bullet points include: First formally adopted by FSA We are proposing to introduce a ‘reverse-stress’ test requirement, which would apply to banks, building societies, CRD investment firms and insurers and would require firms to consider the scenarios most likely to cause their current business model to become unviable. Our aim is to ensure that firms more fully explore ‘tail risks’ which, if they were to crystallise, would cause counterparties and investors to lose confidence in them, so that a firm is more aware of its business model vulnerabilities when making strategic business decisions, when contingency planning and when considering its risk management arrangements. This is a holistic requirement which, in addition to any other risks to a firm’s capital position, requires firms to consider other relevant risks, including liquidity risks  (FSA CP08/24) Now required in CEBS guidance for European banks and mentioned in Solvency II guidance

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