Examiners are also instructed to review the results and adequacy of an institution’s stress testing and scenario analyses in assessing both the magnitude and management of credit exposure. The need to emphasize in-depth transaction testing is another important supervisory lesson learned (or relearned) in the LTCM case, and this is emphasized in our supervisory guidance.
The increasing complexity of financial markets and banking activities places a premium on focusing supervisory resources at high-risk areas and conducting sufficient transaction testing to identify variances between policy and practice. Increasingly this involves conducting transaction testing with highly qualified specialists.