Rating Models and Validation - Oesterreichische Nationalbank

6.4.3 Developing Stress Tests
This section presents one possible procedure for developing and performing
stress tests. The procedure presented here can be divided into six stages:
Chart 77: Developing and Performing Stress Tests
Step 1: Ensuring Data Quality
One basic prerequisite for successful stress-testing is a high-quality data set.
Only when the data used are accurate and up to date can stress tests yield suitable
results from which effective countermeasures can be derived.
For example, it is crucial to ensure that ratings are always up to date and
valid. If this is not the case, the borrowersÕ creditworthiness (and thus also
the corresponding PD) may change substantially without the knowledge of
the credit institution. The stress test would then be based on an outdated risk
situation, and would thus be unable to generate meaningful forecasts under crisis
conditions.
Other important credit portfolio data include the outstanding volume of
each credit facility, the interest rate, as well as any available collateral.
Using inaccurate or dated collateral values, for example, can also distort the
risk situation. This is precisely the case when excessively high collateral values
(which cannot be attained in the case of realization) are entered.
Important market data which may simultaneously represent risk factors
include interest rates, exchange rates and stock indices. This information is
Rating Models and Validation
Guidelines on Credit Risk Management 133