Basel III: Enhancements to Basel II: System-wide changes & Increased Stress Testing

3 mins read time Basel III seeks to enhance the Basel II framework by addressing both firm-specific risk as well as system-specific systemic risk factors. Here, we will discuss some of major improvements being made to the Basel II framework on a macro-prudential system-wide basis as well as the greater role that stress testing will play in the process.

ICAAP: Credit Risk: Stress Test: Transition Matrix Stress Test

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3 mins read time In this post we discuss one way of stress testing a rating grades transition matrix. The stressed transition matrix will then be used in the other credit risk quantification calculations. The revised results will be compared to the original credit risk quantification calculations to determine the impact of the stress test.

ICAAP: Credit Risk: Stress Test: Profitability Analysis of a bank’s loan portfolio


< 1 min read In this post we will go through the step-by-step methodology of carrying out a profitability analysis of the bank’s loan portfolio. This in itself is a kind of a stress test for credit risk under the Internal Capital Adequacy and Assessment Process (ICAAP) as it also computes a worst case profitability scenario.