RisKIT · Prudential models · Stress testing
RisKIT stress testing models are the scenario engines built into RiskTAE’s pre-built Excel capital and liquidity models for banks, building societies and other regulated firms. Each capital model runs a base case and four stress scenarios over three years and supports reverse stress testing, and liquidity model 400 runs business as usual plus mild, moderate and severe stress over the same horizon.
There is no separate stress testing model to buy. The scenarios run in the same workbook as the capital or liquidity calculation, so the stress results and the plan come from one set of open formulas that your validators and your supervisor can follow line by line.
By Mark Dougherty, CPA (CAN)Updated
The models
Every all-risks capital model and the liquidity model carry the engine, so a stressed ratio comes from the same exposures, requirements and buffers as the base case.
| Models | Framework | What the engine runs |
|---|---|---|
| 500, 501 | UK Basel 3.1 (PRA) | A base case, four capital stress scenarios and reverse stress testing. |
| 600, 601; 700, 701; 800, 801 | EU CRR III; finalised Basel III (BCBS); US Basel III Endgame | The same engine under each framework’s rules; the US models add CCAR reporting. |
| 200, 201 | Basel II, without or with Basel 2.5 market risk | The same engine, for regulators still on Basel II. |
| 400 | Basel III liquidity and funding (ILAAP) | Business as usual plus mild, moderate and severe liquidity stress, and reverse stress testing. |
| 900 | Recovery and resolution planning | No engine of its own; it holds the triggers, options and indicators the stress results feed. |
The market-risk-only models (300, 502, 602, 702 and 802) calculate the Pillar 1 market risk charge; the scenarios run in the all-risks model for the same framework. Full listings: capital models and liquidity models.
Scenarios and outputs
A base case and four stress scenarios over three years: idiosyncratic, market-wide (systemic), the two combined, and macroeconomic with its key stressor impacts. For each, the model shows the capital ratio trend, the risk-weighted asset breakdown and the surplus or deficit against requirements, and produces the Pillar 3 disclosure report.
Model 400 runs business as usual, then mild, moderate and severe stress over three years, each in any of the same four categories, recalculating the LCR, the NSFR and the survival period, the gap by maturity bucket in local and foreign currency, and the contingency funding needed to close it.
Both engines support reverse stress testing, a search for the conditions under which the business model becomes unviable, and traffic-light triggers show a ratio heading for its threshold before it reaches it.
Management headroom and supervisory buffer overlays are held for Pillar 2B, capital for risks a firm may face over a forward-looking horizon including under stress; the final determination stays with the supervisor. The reverse stress test also gives the recovery plan its far end: SS9/17 expects recovery scenarios to show capital and liquidity profiles over time without and with the recovery options deployed, and model 900 holds those options, triggers and early warning indicators.
In our experience the combined scenario is the one that bites: a firm-specific loss inside a market-wide downturn compounds rather than adds, and a firm that has only run the two apart tends to find its management actions overlap, the same asset sale counted twice.
Sources: PRA SS31/15 The ICAAP and the SREP, para 5.10; PRA SS9/17 Recovery planning, March 2026, para 2.66.
Data and set-up
The base case comes from data your finance and treasury teams already produce: exposures and the capital base for the capital engine, balances and contractual cash flows by currency and the liquidity buffer for model 400, and the business plan behind the projection.
The scenarios are inputs, not code. Each shock and the behavioural assumptions behind it, such as how retail deposits behave under stress, sit in the assumptions register with a change log, in colour-coded input cells, so a scenario can be re-based each cycle without touching a formula.
What most often fails when a firm moves off a home-built spreadsheet is the base case. If year one does not tie to the budget the board approved, every stressed number inherits the gap and the review opens with why the plan and the ICAAP disagree. Set-up starts by reconciling the two; a typical set-up is on the implementation and support page.
Validation and audit
Governance stays with your firm, as with any internal model, so the engine is built to be tested rather than taken on trust: every formula is open, there is no VBA, the user manual carries the technical specification and the register shows which assumption changed and when.
Regulatory timetable
PRA Basel 3.1 and SDDT capital rules apply
A capital stress test approved in 2027 runs on Basel 3.1 risk-weighted assets: the PRA’s final rules in PS1/26, published on 20 January 2026, take effect on 1 January 2027, and models 500 to 502 are built to them. The SDDT capital regime starts the same day under PS4/26 and replaces the cyclical stress testing framework with a non-cyclical one; since 20 January 2026, SDDTs other than new and growing banks update the ICAAP and ILAAP every two years.
For liquidity, the Rulebook requires regular stress tests, reviewed by senior management and reported to the management body, and SS24/15 expects severe but plausible scenarios and a risk appetite statement defining the duration and type of stress the firm aims to survive. The survival horizon is the board’s to set: model 400 measures it, to 90 days as delivered, and shows whether each case meets it. The documents themselves are covered under ICAAP and ILAAP.
Sources: PRA PS1/26 Implementation of Basel 3.1: final rules, 20 January 2026, para 1.23; PS4/26 The Strong and Simple Framework, 20 January 2026, paras 1.12 and 1.15, with PS20/25 paras 1.14 and 1.38; PRA Rulebook, ILAA Part, rules 11.3 and 11.7; PRA SS24/15, January 2026, paras 2.10 to 2.12.
Licence
You pay once. The licence is perpetual, for internal use by the legal entity named in your order, with no subscription or annual maintenance fee, and the scenarios are part of the model rather than a separate module.
A regulatory logic error or functional defect in the model as delivered is corrected free of charge, however long after delivery, and a regulatory update commitment covers statutory changes to the rules the model is built on for the update period in your order. Prices are on request; full terms are in the RisKIT licence section.
Implementation and support
Our team implements the model wherever you operate: a walkthrough against your balance sheet, configuration, a first run on your own data and training for the people who will own it, typically in weeks rather than months, with remote support for set-up, data entry and early use afterwards.
Bring your last ICAAP’s scenario set to the walkthrough: mapping last year’s shocks into the register shows quickly what the engine adds and which results the board will need re-explained.
Risk Advisory can validate the engine on your data, tailor a scenario or write the stress narrative for the ICAAP or ILAAP built on it, under a separate agreement.
FAQ
No. The scenario engine is built into each all-risks capital model and into liquidity model 400, so one set of formulas produces the requirement, the projection and the stress results. A firm that needs both takes a capital model and model 400.
Yes. The shocks are inputs in the register and the models are standardised but configurable, so your team can re-base a scenario or add one. Larger changes can be built by us under a separate agreement.
Yes, for capital and for liquidity. In practice non-viability arrives before capital or liquidity reaches a regulatory minimum, when counterparties and depositors lose confidence, so agree the failure point with the board and tie it to the triggers in your recovery plan.
Insights
The PRA buffer, also called Pillar 2B, is capital a bank or building society should hold on top of its Total Capital Requirement (Pillar 1 plus Pillar 2A) and its combined buffer, to absorb losses in...
By Mark Dougherty, CPA (CAN) · 9 min read
From 1 January 2027 an ICAAP has to be written on a Basel 3.1 basis. The PRA set this out in PS15/26: ICAAPs signed off by boards in 2026 should include an impact assessment of Basel...
By Mark Dougherty, CPA (CAN) · 8 min read
Pillar 2A is the firm-specific capital the PRA requires a bank or building society to hold on top of its Pillar 1 minimum, for risks Pillar 1 does not capture or does not capture fully, such...
By Mark Dougherty, CPA (CAN) · 7 min readNext step
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