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ERMAS LAB, a Prometeia compass to navigate these stress-testing times

March 2020

 

Advanced scenario generation capabilities are mandatory to project the possible outcomes of the COVID-19 pandemic

At Prometeia we are committed to release a new baseline deterministic scenario that considers the inevitable economic slowdown deriving from the extraordinary restrictive measures taken all over the world to contain the virus outbreak, in order to determine the evolution of the macroeconomic context and, consequently, of risk factors and their impact on risk parameters and credit satellite models. On top of that, we run stochastic simulations to analyze possible alternative scenarios. 

Prometeia’s ERMAS LAB – a new generation of Integrated stress-testing solutions – is at the heart of the process. ERMAS LAB is the component of ERMAS Suite used to run multi-scenario, comprehensive simulations of balance sheet, P&L and risk variables:

  • to challenge (and if needed to adjust) the managerial assumptions underlying strategic plans and both budget and test projections in light of their probability, reducing strategic risks for the bank; 
  • to support stress testing and reverse stress testing processes, as well as other complex simulation exercises, such as Recovery Planning, RAF calibration, ICAAP-ILAAP, …;
  • by managing multivariate financial and econometric models characterized by non-linear dynamic equations, regime switching, non-Gaussian processes, etc.;
  • typically via Monte Carlo approaches, thanks to its embedded scenario-generation capabilities.

ERMAS LAB allows to define complex simulation structures by linking variables of different models, including models developed independently from each other or acquired from third parties.

 

“With ERMAS LAB Prometeia fully supports the integration between Risk, Finance and Planning activities, which is even more important nowadays during the Coronavirus emergency, when banks are considering to rewrite their plans in light of the new scenario (very volatile and changing almost on a daily basis) and are particularly interested in understanding how their balance sheet will evolve,” says Andrea Partesotti, Director and Head of Enterprise Risk Management at Prometeia.

 

Prometeia develops ERMAS, a fully integrated platform supporting Balance Sheet Risk Management, Regulatory & IFRS Compliance, Performance Management & Control, Credit Risk Analysis and Credit Decision Management.