621. When deciding on the key elements of supervisory stress testing, competent authorities should consider, inter alia, the following:
a. Coverage, in terms of covering certain risk factors or multiple risk factors, certain individual portfolios or activities or sectors/geographies, all or several portfolios.
b. Design, in terms of the following: (1) sensitivity analysis (single-factor or simple multi-factor), (2) scenario analysis or (3) reverse stress testing. Competent authorities should choose the design that is most appropriate for the objective pursued by the stress test: sensitivity analysis to a single risk factor or multiple risk factors should normally be favoured when assessing individual risk to capital or risks to liquidity or funding; the scenario analysis approach should normally be favoured when an assessment of overall capital adequacy is sought; while reverse stress testing may, inter alia, be deemed appropriate for assessing the severity of the scenarios used by the
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