Stress Testing Solutions 2016, Part 2: Cracking the Solutions Puzzle

by Cubillas Ding,  Dennis Kong, April 4, 2016
Vendor Reviews
Global, North America

Abstract

With systemically important financial institutions expecting to spend in excess of $75 million annually on regulatory stress testing exercises, the search for viable operating models and solutions continues. Celent evaluates enterprisewide stress testing solutions that enable sustainable future state capabilities.

 

Banks are facing another year where there will be two big regulatory stress testing exercises: US CCAR/DFAST and EU stress testing. With regular exercises over the past few years, the industry has partially ascended up this Himalayan regulatory mountain since stress tests started at the turn of the decade, yet it is still short of where it could be towards the next summit, especially from an operations/IT perspective.  

Anecdotal evidence suggests that systemically important institutions are expecting to spend in excess of $75 million annually in the US on stress testing / CCAR exercises. Extensive and granular requirements for stress testing infrastructure, data, and applications mean that end-to-end solutions with full straight-through processing capabilities are still few and far between. Although it is a top of mind issue, the reality is that, at many firms, the journey to firmwide stress testing as a business-as-usual activity is still in progress.

In the next installment of a report series Stress Testing Solutions 2016, Part 2: Cracking the Solutions Puzzle, Celent examines the vendors and solutions that will enable next-generation stress testing capabilities.

At this juncture, first- and second-generation capabilities of vendor solutions are differentiated along several dimensions:

  • Functional coverage of stress testing information repositories.
  • “Straight-through integration” across various components of the stress testing ecosystem.
  • Analytical framework and capabilities for balance sheet and income projections
  • Level of integration with model development / implementation environments.
  • Ability to align with adjacent areas such as regulatory reporting/submission, budgeting, capital planning, and forecasting applications.

However, market solutions are uneven. Various pieces of the puzzle need to come together to reduce high expenditures and resource consumption associated with regulatory stress testing exercises, and to improve data consistency and delivery across risk, disclosure reporting, and financial management activities.

“In the longer run, there are converging requirements to align finance and risk information and reporting,” says Cubillas Ding, a research director with Celent’s Securities and Investments practice and author of the report. “This is not only accelerated by stress testing regulations, but also other regulatory dynamics around IFRS 9 accounting, Basel III capital/liquidity rules and risk data aggregation, layered with ongoing leverage and cost constraints driving the need for greater efficiency.”

This report is the second installment of a series evaluating the vendors and solutions required to achieve sustainability, consistency and repeatability of risk, capital, and finance organizations’ enterprise stress testing capabilities in the longer-term.

This 60-page report contains 21 figures and 20 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

 

Key Research Questions

2

Enterprise Stress Testing: Catching The Next Wave

3

 

Emerging Best Practice Target Architecture and Guiding Principles

4

 

Architectural Options and Evolution of Capabilities

6

Vendor and Solution Overviews

9

Vendor Ranking

10

 

At a Glance

10

 

Advanced Technology

10

 

Breadth of Functionality

11

 

Client Presence

12

 

Depth of Services

13

Vendor and Solution Observations

14

 

Strategic Positioning

14

 

Differentiating Capabilities

16

Vendor Profiles, Strengths, and Weaknesses

18

 

FIS (SunGard)

18

 

IBM

22

 

Moody’s Analytics

26

 

Oracle

30

 

Quantitative Risk Management (QRM)

34

 

SAS

38

 

Wolters Kluwer

42

Looking Forward

46

Appendix

47

 

A. Evaluation Criteria

47

 

B. Technical Platforms

48

 

C. Vendor Pricing Structures

50

 

D. Detail on Ecosystem of Components

52

Leveraging Celent’s Expertise

53

 

Support for Financial Institutions

53

 

Support for Vendors

53

Related Celent Research

54

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