Banks are improving the way they apply regulatory stress tests to their balance sheets, but gaps in areas such as technology and reporting are restricting further benefits.

That’s according to a new report, Stress Testing: A View from the Trenches, compiled by the Global Association of Risk Professionals (GARP) and analytics firm SAS. The research included a survey of risk professionals representing commercial, retail and investment banks, as well as asset managers and other financial institutions.

The study found a wide variation among FIs regarding the time needed to complete stress tests. While 22 per cent took less than a week, nearly half took one to four weeks, and 25 per cent needed up to eight weeks. When it came to modelling, nearly half required more than six hours to execute a set of stress testing models, and just 10 per cent said they could do it in less than an hour.

The report connected certain characteristics – for example, close alignment with supervisory risk models and a willingness to act constructively based on results – with effective and mature operations. But even among the most progressive institutions there was widespread agreement that technology was not up to speed, with respondents rating their technology significantly below their organisations’ staff and expertise. A further eight in 10 also called for more co-ordinated internal reporting related to stress testing.

“New regulatory requirements and standards now have financial institutions treating their stress-testing capabilities as essential processes rather than a one-off compliance exercise,” commented Simon Goldsmith, head of risk solutions at SAS UK & Ireland. “But many still struggle to meet the new regulations in a timely and effective way, and work still remains to be done when it comes to streamlining technology and eliminating organisational silos that challenge seamless reporting.”

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