MAS employs a comprehensive range of stress tests to assess the risks to the portfolio on an ongoing basis and establish whether the portfolio remains resilient to potential tail risk events over the medium term.
Three types of stress tests are conducted:
Historical: Shocks are applied to the portfolio using asset price movements seen in historical stressed episodes, such as the Global Financial Crisis, 2000 dot-com bust, 1994 bond market selloff, etc.
Vulnerability-based: The portfolio is subject to hypothetical scenarios which stress in turn each of the portfolio’s risk factors such as equity, interest rate, credit, inflation, and foreign exchange.
Thematic: These are forward-looking stress tests and are designed by taking into account prevailing market conditions and potential risk events on the horizon.
Depending on the stress test results, MAS will consider appropriate responses and portfolio adjustments when needed.
The risk management framework is reviewed on a regular