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The DIFC Authority hosted a workshop on ‘Financial Vulnerability Indicators and Bank Stress Tests’ on 29 September, 2009.

The latest in DIFC’s ‘Economics Workshops’ series, the event will discuss how banks can use ‘vulnerability indicators’ to assess their capacity to withstand challenging economic conditions. The event will also explore how ‘stress tests’ can help banks in evaluating their finances in both adverse and normal scenarios. Vulnerability indicators and bank stress tests have a range of applications – from detection of early warning signs to credit rating.

Dr Nasser Al Saidi, Chief Economist, DIFC Authority said: “The unprecedented volatility in financial and money markets and increased economic uncertainty caused by the global economic crisis makes it critical for banks and financial institutions to identify, measure and monitor their vulnerability to a range of factors and to extreme variations or outcomes of those risk factors. For central banks and regulators who have to deal with financial soundness at the level of individual banks as well as mitigate systemic risk, the crisis has highlighted the need to assess the effectiveness of financial vulnerability indicators and to develop new early warning and financial vulnerability indicators to enhance their risk monitoring and mitigation capabilities. As part of DIFC’s efforts to enhance awareness of key financial issues within the region’s banking & financial community, the Workshop explores how banks, financial institutions and regulators can incorporate financial vulnerability indicators into their decision making and risk management strategy for countering the effects of the economic and financial crises.”

DIFC’s ‘Economics Workshops’ series is aimed at contributing to the development of the region’s financial markets by increasing understanding of key new financial trends and developments. The Workshops are targeted at professionals not only within the DIFC financial district but also the wider business community in the region.

Bryan Stirewalt, Director, Supervision – DFSA: added: “Over the past twelve months, the global economy has shown what many financial institutions deemed to be their strategic planning “worst case scenario” become their base case reality.  Over an elongated period of economic stability, many firm’s stress testing models were merely a debate between the two or three “best case scenarios”, without adequate consideration of vulnerabilities or downside possibilities.  This workshop is an excellent forum for industry practitioners, economists, academics and regulators to discuss the purpose of stress testing measures, and a range of vulnerability indicators that firms of all types should be using in their risk management processes.  We can all learn from each other at this time so as to better plan for events in the future”.

“Cristiano Zazzara, Global Head of RiskMetrics Group’s Banking Business, adds: “Transparency and risk management expertise are key to the continued development of Dubai as the world's fastest growing international financial centre. RiskMetrics Group is very pleased to join DIFC at the workshop and talk about the relationship between credit risk and the business cycle. Given the current economic environment, it’s even more important for Financial Institutions conditioning Risk Models’ outcomes to Macroeconomic factors, in order to test the resilience of their financial structure over adverse stages of the economic cycle.”