Breakfast

Welcome Remarks

Modeling Post-Stress Revenue and Expenses, Including Operational Risk Expenses

Net Interest Income

Overview: The modeling of Net Interest Income under stress poses distinct challenges due to the varied nature of firms’ assets and liabilities. In this session, the Federal Reserve will discuss the design choice considerations between top-down statistical approaches and bottom-up structural approaches. The session will also cover modeling approaches and data required to capture the impact of firms’ hedging strategies under stress.

Break

Noninterest Income and Noninterest Expense

Overview: In this session, the Federal Reserve will discuss key assumptions and model design choices for projecting Noninterest Income and Noninterest Expense under stress. These include: the choice of data on which to calibrate the models, the choice of model granularity, and how to best capture information regarding a firm’s business model and operating procedures. These inter-related design choices will be discussed in the context of the Federal Reserve’s stress testing principles.

Lunch

Operational Risk Losses

Overview: Operational losses exhibit distinct characteristics and are modeled separately from other non-interest expense components of PPNR in the Federal Reserve’s supervisory stress test. Modeling operational losses under stress presents challenges, such as quantifying robust relationships with observable risk factors, choosing a firm size measure for reliably scaling operational losses, differences in data collection practices across firms, and ensuring stability in results. In this session, the Federal Reserve will provide an overview of the conceptual goals, limitations, and modeling approaches for projecting operational risk losses under stress.

Modeling for Market Risk Portfolios

Available-for-Sale and Held-to-Maturity Securities

Overview: The application of stress scenarios to firms' securities holdings encompasses several key modeling areas and assumptions, such as interest rate sensitivity, hedging, credit risk valuation, and reinvestment assumptions. In this session, the Federal Reserve will provide an overview of assumptions, limitations, and other considerations as they relate to these modeling topics.

Break

Global Market Shock Component

Overview: The global market shock scenario for stress testing firms' trading books and counterparty credit exposures involves design choices in areas such as calibration of shocks, comprehensiveness of market risk capture, and the choice of the as-of-date for stress testing positions. In this session, the Federal Reserve will provide an overview of the key GMS design assumptions and considerations.

Closing Remarks

Reception