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Stress Testing Required? The Market says so!

The ‘trading’ (read gambling in my view 🙂 ) website InTrade allows everybody and their dog to trade on future events such as who will win the U.S. Republican nomination, who will win best picture at the Oscars, and, interestingly, will S&P rate Greece in default before midnight ET 31 Dec 2012 (see: Looks like the probability, based on the latest trading, is over 80% likelihood that Greece will be in default on Dec 31, 2012.

While this is a real problem for Greece (everybody should take note – the bond market runs the world!), the impact will hit some banks more than others. Stress testing this scenario (and for Spain, Italy – even France?) should be a top priority for banks around the world. Running large ‘what-if’ scenarios is expensive and complex, and this will probably not be the only time stress testing scenarios need to be run, so investing in a historical database with high performance analytics (such as Sybase RAP) will be a good long term investment – and might also help mitigate some short term pain.

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