These are inter-related tools that can be highly effective in achieving sound risk management and governance in financial institutions of any size and nature.
- Stress testing is an important tool to evaluate the potential vulnerability of a financial institution to economic and financial shocks, and to assist in determining appropriate risk management arrangements.
- APRA has extended recovery planning requirements to the regional banks and a number of other ADIs including mutuals. It will become a permanent component of its supervision activities.
- One of the most effective ways of assessing the adequacy of the recovery plan, and of making it a living document, is to periodically test it through financial crisis simulation exercises.