Regulatory Alerts2009-06-02
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Principles for sound stress testing practices and supervision
The Hong Kong Monetary Authority directs authorized institutions to review their stress-testing practices in light of the Basel Committee on Banking Supervision's new Principles for Sound Stress Testing Practices and Supervision. This circular highlights critical weaknesses revealed by the financial crisis, including inadequate governance, underestimation of stress severity, and insufficient risk aggregation. Institutions are expected to strengthen their frameworks proportionately while the regulator prepares to update local guidelines to align with these international standards.
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