1.1 This supervisory statement is aimed at firms to which CRD IV applies.

1.2 This statement sets out the Prudential Regulation Authority's (PRA's) expectations of firms in relation to stress testing, scenario analysis and capital planning, and the requirements set out in the PRA Rulebook in Chapter 12 of the Internal Capital Adequacy Assessment rules.

1.3 It provides further detail on the high-level expectations outlined in The PRA's approach to banking supervision.

1.4 Stress testing typically refers to shifting the values of individual parameters that affect the financial position of a firm and determining the effect on the firm's financial position.

1.5 Scenario analysis typically refers to a wider range of parameters being varied at the same time. Scenario analyses often examine the impact of adverse events on the firm's financial position, for example, simultaneous movements in a number of risk categories affecting all of a firm's business operations, such as business volumes, investment values and interest rate movements.