Corporates Can Learn From Bank Stress Test, Says Wall Street Systems
The stress tests recently used to test the financial strength of US and European banks revealed financial pressures that might otherwise have remained hidden. While corporates are obliged to report more detailed financial ratios than banks, cash management specialists at Wall Street Systems believe corporate stress tests could help treasurers make the case for more balanced financial structuring.
The stress tests recently conducted by the Committee of European Banking Supervisors (CEBS) revealed that seven out of the 91 banks tested had failed the rigorous test it set to gauge their financial strength. This stress testing will be repeated every two years and echoes a similar test by US and Swiss regulators, and is being adopted in other jurisdictions to test the financial stability of their banking systems.
“Corporations typically measure risk in a decentralised manner – looking at individual pockets or silos of risk independently without trying to bring all of the pieces together into a more holistic view. While it would have to be tailored to corporation and sector, a corporate version of the banking stress tests could be a useful tool in the armoury of a corporate treasurer,” said Tom Nelson, a cash management specialist at Wall Street Systems.
Wallstreet has developed some guideline questions corporate treasurers should be asking themselves to better determine risk holistically: