In June 2020, SAS announced a partnership with Microsoft that will bring SAS industry solutions onto Microsoft Azure. This entails some exciting developments for our risk solutions for financial services. Martim Rocha, Director and Global Head of Risk Banking Solutions at SAS, shared some insights with me about the challenges financial institutions face with stress testing. He also discussed how they can benefit by transitioning to the cloud.

Where are institutions still struggling with stress testing?

Process inefficiencies remain a key issue with banks’ stress testing programs. When a large staff has to spend weeks to analyze a single scenario, it’s hard to think beyond regulatory compliance and expand efforts toward more strategic use cases. A lack of process scalability effectively constrains the range and frequency of scenarios that can be considered. This prevents stress testing from taking a larger role in strategic planning. And because stress testing teams are so consumed with operating and maintaining their processes, they can’t dedicate time to evolving their capabilities.

How has the pandemic changed the way banks approach stress testing?

The global outbreak of COVID-19 revealed the limitations of business-as-usual regulatory stress testing. We’ve seen economies plunge much faster and deeper than envisioned in even the most severe regulatory scenarios. As a result, we are seeing regulators starting to enhance their prudential stress tests with a wider dispersion of economic scenarios.

We also find that banks are anxious to use their stress testing programs to inform decisions as the pandemic progresses. Management is looking for information on how their portfolio might be affected over a range of plausible paths, and these outlooks may change daily. This uncertainty is bringing scenario-based analysis to the forefront as a management tool. In turn, stress testing teams are under pressure to run more scenarios, faster – delivering tangible results management can use immediately.

How will financial institutions benefit from SAS cloud-based stress testing?

With the SAS Cloud solutions on Azure, financial institutions have a powerful and easy-to-access environment for stress testing and analyzing their company’s performance quickly over a wide range of scenarios. Our scalable, open environment for scenario-based analysis and stress testing allows firms to quickly bring in their data and begin analyzing their portfolio over a wide range of economic and business assumptions.

Just as we’ve seen across other industries, financial firms have adopted remote working arrangements during the pandemic. With a centralized, cloud-based environment for stress testing, everyone involved in the process can remain connected and aligned. This also ensures governance and controls remain effective.

Teams can maintain a synchronized process – even during fast turnaround, highly iterative analyses – with everyone using a consistent set of scenarios and assumptions throughout. And because these types of stress tests often rely on a mix of quantitative models and expert judgment, our solution allows teams to add overlays and adjustments with full transparency and auditability.

The scalability of the cloud allows banks to maintain data granularity across analytical tasks without slowing processes or straining resources. By maintaining this granularity, they can easily drill into projections to identify key drivers and better understand potential areas of risk in their portfolio.

Our sophisticated tools for attribution and trend analysis let banks quantify the effects of changing scenarios and assumptions. This gives management a transparent view of each analysis – supporting confidence in the results.

How do banks get started with stress testing on the SAS Cloud?

It’s easy for financial institutions to get started. First, we’ve simplified the service level agreement (SLA) process. By combining software and SAS’ hosted solution on Azure into one SLA, customers get one point of contact for both contracting and operational concerns. We are also offering more standardized pricing and hardware environments to accelerate initial deployments.

Because of this, financial institutions of all sizes will find it easier than ever to implement our industry-leading stress test solution. And as their programs evolve, the solution can be scaled to support other analytical needs across the organization, such as IFRS 9 and CECL.

To learn more, download the free e-book: Reimagine Analytics in the Cloud With SAS® and Microsoft Azure

About Author

John Voigt

Principal Business Solutions Manager

John Voigt is a Principal Business Solutions Manager at SAS. He has over 15 years of experience in risk management, including model development, risk strategy and consulting. Through this work, he has developed practical domain knowledge across a number of areas, including regulatory and economic capital, stress testing, credit loss forecasting, and CECL/IFRS 9.

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