Stress Testing Case Study: Medium-Sized Commercial Bank Leverages JSP for Its Stress Testing Exercises

Client’s Challenge

  • A commercial bank lacked the analytic infrastructure to conduct stress tests on its consumer and commercial structured loan securities portfolios.
  • Regulatory reviews had identified weaknesses in the current processes’ability to directly incorporate multiple userdefined stress and scenario tests into their process.

Our Solution

  • JSP’s comprehensive suite of statisticallybased models of credit and interest rate risk incorporate multiple macroeconomic factors unique to a wide range of consumer and commercial asset types.
  • The nature of the bank’s varied and complex structured securities portfolio required a capability such as JSP to not only evaluate underlying loan collateral performance but do so in the context of various types of structured transactions.
  • JSP’s ability to integrate with the Intex structuring tool provided a seamless assessment process of the bank’s structured portfolios.
  • The bank was able to leverage the preexisting stress scenarios within JSP (including DFAST and CCAR) as well as conduct its own analysis using a set of scenarios developed by the bank.

Outcome

  • The bank was able to satisfactorily address the earlier weakness raised by its regulators of their stress test process associated with the bank’s structured portfolios by integrating JSP into its existing process
  • The success in leveraging JSP has evolved into using the Javelin WholeLoan (JWL) Platform for stress testing the bank’s consumer andcommercial loan portfolios for a consistent application of credit andinterest rate risk across loan and structured securities