Stress Testing Across International Exposures and Activities

Robert Scavotto, Robert H Skinkle

Stress testing foreign exposures of internationally active financial institutions presents an array of challenges from developing data-sets to understanding and factoring in qualitative factors that may drive loss rates. These factors can be a function of the government or more simply related to developments in lending practices within a given market. Our work to stress test consumer loan portfolios across a group of countries led us to conclude that a stress-test approach for consumer portfolios in Asia is best pursued on an individual-country basis with a stratification of the consumer portfolio by secured and unsecured credits. This chapter describes our work in this area and uses the Korean consumer market as a case study.

Conducting Stress Tests of International Activities in an Idiosyncratic World

Financial institutions with international business activities, including operations in foreign markets, have a number of questions to consider in designing stress tests that cover these activities, exposures and risks. The first and most important is deciding on the purpose of the stress test, since international risks can overlie a number of different risk types, such as credit