Barclays 2013 Annual Report Download - page 393

Reverse stress testing
The Group-wide stress testing framework also includes reverse stress
testing techniques which aim to identify the circumstances under
which Barclays’ business model would become no longer be viable,
leading to a significant change in business strategy. Examples include
extreme macroeconomic downturn scenarios, such as a break-up of
the Euro area, or specific idiosyncratic events, covering both
Operational risk and capital/liquidity events.
Reverse stress testing is used to help support ongoing risk
management and is fully integrated into our risk appetite framework.
Reverse stress testing methodology includes identifying tail risks
associated with specific low likelihood circumstances, and identifying
appropriate mitigating actions. For example, the approach for
managing Eurozone peripheral risks was informed by the results of the
reverse stress testing assessment ran in 2010.
Business and risk type specific stress tests
Barclays also uses stress testing techniques at portfolio and product
level to support risk management. For example, portfolio management
in the US cards business employs stressed assumptions of loss rates to
determine profitability hurdles for new accounts. In the UK mortgage
business, affordability thresholds incorporate stressed estimates of
interest rates. In the Investment Bank, global scenario testing is used to
gauge potential losses that could arise in conditions of extreme market
stress. Stress testing is also conducted on positions in particular asset
classes, including interest rates, commodities, equities, credit and
foreign exchange.
Information on the Group’s stress testing specifically relating to
liquidity risk is set out in the Funding risk – Liquidity section. Further
information on market risk stress testing is provided in the Market Risk
section.
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