• Stress Testing

    Stress testing is an essential tool for understanding how your bank would perform under adverse conditions. We help you design and embed meaningful stress tests that provide insight into capital and liquidity vulnerabilities, support strategic planning, and strengthen risk governance across your business model.

Key activities

Stress testing is not just a regulatory obligation, it’s a management tool that supports resilience, forward-looking risk assessment, and informed decision-making. The PRA expects firms to integrate stress testing into ICAAP and ILAAP, recovery and resolution planning, and broader governance and capital planning frameworks.

Our structured service model helps you develop a fit-for-purpose stress testing framework that reflects your business model, supports supervisory expectations, and strengthens risk ownership across the institution.

  • We work with your board and management team to define the purpose, coverage, and use cases for stress testing, whether it’s capital planning under ICAAP, liquidity and funding risks under ILAAP, or recovery planning. We tailor the scope to fit your size, complexity, and risk profile.

  • We help you design both macroeconomic and firm-specific scenarios that are severe yet plausible. We align these with regulatory guidance (e.g. PRA ICAAP Scenario, baseline/downside cases) and ensure scenarios capture key business risks such as credit shocks, interest rate movements, or operational disruptions.

  • Using your data and risk drivers, we build stress testing models that simulate impacts on capital, liquidity, and earnings. Our k-alm® models are transparent, flexible, and designed to be used by your internal teams. We develop sensitivity tests, reverse stress tests, and multi-scenario dashboards to support comprehensive analysis.

  • We quantify the financial and operational effects of the stress scenarios, assessing metrics such as CET1 depletion, LCR breach, net interest income compression, and solvency thresholds. We also evaluate management actions and their effectiveness under stress.

  • We help you document your methodology, assumptions, and results in a way that meets regulatory standards and internal governance expectations. We prepare stress testing packs for ALCO, Risk Committees, and Board sign-off.

  • We work with you to integrate stress testing into ongoing planning cycles—so it becomes a regular input into budgeting, risk appetite, and decision-making, not a one-off regulatory task.

What we offer

  • End to end solution

    End to end solution

    Using our k-alm® cloud based solution, we help you design and implement a complete, proportionate stress testing framework across capital, liquidity, and earnings. We tailor it to your unique risk profile, regulatory obligations, and internal governance structure.

  • Scenario design and modelling

    Scenario design and modelling

    In collboration with your Board and management team, we develop robust stress scenarios and build models to assess the quantitative and qualitative impact on your financial position and strategic resilience.

  • Targeted support

    Targeted support

    You may only need support for scenario development, model validation, or documentation for ICAAP , ILAAP, RRP or SEA. We offer modular advisory services to plug into your existing framework. We ensure your stress testing practices meet PRA expectations and are consistent with evolving supervisory focus areas, such as interest rate risk, climate stress, and reverse stress testing.

Let’s get started

Interested in learning more about how we can support your bank? Whether you have specific requirements or just want to explore our services further, we’re here to help. Please feel free to contact us, and one of our experts will get in touch to discuss your needs and how we can assist

We look forward to working with you!

Contact us

Why choose us

  • We bring a strong understanding of PRA stress testing expectations and industry modelling practices, tailored specifically for smaller and mid-sized UK banks.

  • Our stress testing approach is not generic, we align every scenario and impact assessment with your bank’s structure, business model and strategic goals.

  • We use clear, auditable models and methodologies that your teams can own and maintain. We don’t build black-box systems—we empower your staff to run and evolve the framework.

  • We integrate stress testing into your risk management and business planning cycles. Our approach ensures stress testing is not just a compliance exercise, it becomes an essential tool in decision-making.

  • We’ve helped numerous UK banks strengthen their stress testing practices for ICAAP, ILAAP, and recovery planning—providing both regulatory credibility and internal value.

What are we talking about

Stress Testing
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Basel 3.1-compliant Capital Stress Testing (CST) tool
Stress testing, Basel 3.1

Basel 3.1-compliant capital stress testing tool

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CP5/26: Modernising the Liquidity Policy Framework
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The PRA’s latest consultation (CP5/26) marks a notable evolution in the UK liquidity framework.

Rather than increasing quantitative requirements, focus is shifting toward liquidity usability and operational readiness, reflecting lessons from recent market events and the accelerating impact of digital banking on deposit behaviour.

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Evolving Climate Risk Expectations for UK Banks (SS5/25 via PS25/25)
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On 3 December 2025, the PRA published its final Policy Statement PS25/25 on climate-related financial risks. The final expectations now sit in Supervisory Statement SS5/25 ‘Enhancing banks’ and insurers’ approaches to managing climate-related risks’, which immediately replaces the old SS3/19. The changes enhance requirements in areas such as governance, risk management, scenario analysis, data, and disclosure.

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Liquidity stress testing remains a cornerstone of effective risk management and regulatory compliance for banks. However, a persistent challenge lies in interpreting what constitutes a “severe but plausible” stress scenario, particularly in the context of evolving depositor behaviours and increasing digitalisation of banking.

This paper aims to address this challenge by examining how stress scenarios can be robustly calibrated using empirical evidence backed by statistical methods, with particular focus on liquidity stress testing informing the Internal Liquidity Adequacy Assessment Process (ILAAP).

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The 2025 ICAAP Scenarios — Stress Testing for Small- and Medium-sized Banks
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Arriving hot on the heels of our earlier article on what the 2025 Bank Capital Test Means for small- and medium-sized banks, the Prudential Regulation Authority (PRA) has quietly published an accompanying set of stress parameters. These include both rates-up (supply shock) and rates-down (demand shock) scenarios, and can serve as a useful benchmark for firms not participating in concurrent stress testing. They may be particularly helpful for use in internal stress testing exercises, including within the Internal Capital Adequacy Assessment Process (ICAAP).

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Stress Signals: What the 2025 Capital Test Means for Small- and Medium-sized Banks
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With the Bank of England’s 2025 Bank Capital Stress Test now in motion, small and medium-sized banks should take note. While only the large banks participate directly, it is nonetheless of interest for other firms as they approach their next stress testing exercise. The latest publications bring stress parameters up to date from the 2024 Desk-based Stress Test, and some elements have changed. This article explores what banks can take away from the latest stress programme and how to reflect those developments in their own risk management processes.

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PRA’s 2024 ICAAP Stress Test Scenarios for Non-Systemic Banks
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On 27th June 2024, the Prudential Regulation Authority (“PRA”) published the ICAAP Scenarios for non-systemic UK banks, which are the supply shock scenario and the demand shock scenario. This article summarises the key factors of the scenarios and provides specific points on how small- and medium-sized banks should approach there stress testing design processes, with relation to the 2024 ICAAP Scenarios.

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Stress testing, ICAAP, ILAAP, Risk management
Stress testing
Stress testing overview
Stress testing

Stress testing will assist banks to ask the right question about its business model, capital adequacy, liquidity adequacy and franchise viability. This enables board and management teams to gain a forward looking view of its business and identify suitable management actions in a severe and plausible stress event.

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Stress testing

k-alm® is a risk management software-as-a-service solution that we’ve specifically designed to help small and medium-sized banks conduct stress tests, and evaluate Interest Rate Risk in the Banking Book (IRRBB), without the cost or complexity that is often associated with enterprise solutions.

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