68. Stress testing programmes should encompass all the material risks (both on- and off-balance sheet) relevant for the banking group. To be effective, stress testing should consist of a multi-layered approach to capture risks at various levels in an institution. In this regard, according to the proportionality principle, the scope of stress testing could vary from simple portfolio level sensitivity analyses to comprehensive firm-wide scenario stress testing referring to the broadest perimeter.

4.1 Portfolio and individual risk level stress testing

  Guideline 12. Institutions should perform stress tests on specific portfolios and the specific types of risk that affect them. Consideration should also be given to changes in correlations between risks that the institution identifies for a given portfolio.