Stress Tests 
To meet the requirements of Basel II, banks that use the IRB approach must have sound stress test methods that enable them to assess their total capital adequacy. The banks are responsible for configuring the stress tests. The tests must be both meaningful and conservative.
Stress tests are also of interest to banks that use the standardized approach if, for example, migration analyses are to be carried out for external ratings. Banks that use the standardized approach are also required to assess their capital adequacy. Stress tests can be used for this purpose.
Stress tests use input data and control parameters that have been modified to reflect the (possibly hypothetical) result of a negative change in the economic conditions.
The following are examples of stress tests for Basel II:
Modification of classic market data, such as exchange rates, interest rates, or security prices, and the effects of these on the market value of derivatives
Modification of the PD and LGD as the result of a crisis in a particular sector or country
Worsening of the ratings of counterparties in particular countries
Integration
The figure below shows which Bank Analyzer functions are used in stress tests.
Framework for Mapping Stress Tests
Stress test scenarios in the Source Data Layer (SDL), for example:
Assumption of a worsening credit rating
Modified maturities
Modified positions
Modified market data
For more information, see Scenario and Retrieving Stress Data.
Stress test scenarios in the calculation process (using derivation or using modules from the module editor), for example:
Country-specific rating changes
You can carry out stress runs for the general functions and for the credit exposure calculation. For more information, see Support for Stress Tests in General Calculation and Valuation Methods and Credit Exposure Stress Run.
Stress test scenarios are supported by the Historical Database (HDB), for example:
Modification of the input data used in banks’ own models
Modification of position data in the Source Data Layer
The HDB contains stress runs for banks’ own models. For more information, see Support for Stress Tests in the Historical Database.
You define which Bank Analyzer functions are involved in a stress test by creating a stress test scenario (see Stress Test Scenarios). Here you can also combine multiple scenarios. By specifying whether factors are to be stressed implicitly or explicitly, for example, you define which scenario is depicted in a stress run.