Macro to Micro - Tailoring PRA Stress Tests for Small and Intermediate Banks

Workshop overview:

This four-part, focused workshop provides practical guidance on developing and executing robust stress testing frameworks that meet the evolving expectations of the Prudential Regulation Authority (PRA) and the Bank of England (BoE). Designed for small and medium-sized banks, the workshop equips participants with the tools to design, tailor, and implement stress tests that are both severe yet plausible and directly linked to their business models and risk profiles.

Learning outcomes:

By the end of this workshop, participants will be able to:

interpret and apply PRA and Bank of England stress testing expectations with clarity and confidence.
design and calibrate stress scenarios that are proportionate, severe, and plausible across market-wide, and idiosyncratic dimensions.
translate macro-level variables into impacts on institution-specific exposures, portfolios, and business segments.
model stress impacts across core risk types using practical, regulator-aligned techniques appropriate for small and medium-sized banks, including expert judgment and overlays.
enhance stress testing governance, including documentation, validation, and board-level engagement, to meet supervisory standards.

This course will support participants in embedding stress testing as a central component of their institution’s risk management, capital and liquidity planning, and strategic resilience.

Area of expertise:

Prudential risk, reporting and tax

Module one: Understanding the PRA and BoE stress frameworks

Overview of the PRA stress testing framework for ICAAP and ILAAP.
Key components of the Bank of England Capital Stress Test (including the PRA’s ICAAP scenario variable paths for small and medium-sized banks).
Role of stress testing on the capital stack.
Proportionality expectations for small and medium-sized banks.
Recent thematic feedback from regulators (e.g. DCXO letters, PRA business plan, supervisory priorities letters, etc).

Pain point addressed: Misalignment with regulatory intent; stress test not severe and/or plausible.

Module two: From Macro to Micro - translating capital stress test (incl. ICAAP scenario variable paths)

Deconstructing the macroeconomic variables (GDP, unemployment, HPI, etc.).
Mapping macro indicators to institution-specific exposures (e.g. CRE loans, SME portfolios).
Adjusting for geography, business model, and risk concentrations.
Techniques for scaling down top-down scenarios to relevant segments.

Pain point addressed: Lack of clarity on adapting external scenarios to internal portfolios.

Module three: Building the stress testing toolkit for impact analysis

Credit risk, operational risk, Interest Rate Risk in the Banking Book (IRRBB), and liquidity modelling under stress.
Other risks to be considered (e.g., market risk, credit valuation adjustment (CVA)).
Practical approaches: focus on overlays and expert judgement.
Reverse stress testing: identifying breaking points at which the Bank’s business model becomes unviable.

Pain point addressed: Inadequate or overly complex impact modelling capacity.

Module four: Practical execution - governance and documentation

Internal governance: Board ownership, review cycles, escalation triggers.
What ‘good’ looks like: documentation standards, assumptions, auditability.

Pain point addressed: Poor quality submissions and ineffective governance.

Optional Post-Course Clinic (Virtual, 1–2 weeks later)
Participants bring a scenario or model draft for live peer and expert feedback.

Josh Nowak

Managing Director – Risk Management & Regulatory Consulting, Katalysys Ltd

Josh has over 10 years of experience in finance and treasury functions in financial institutions. He has delivered various strategic programmes for ba...

Josh has over 10 years of experience in finance and treasury functions in financial institutions. He has delivered various strategic programmes for banks, with responsibilities

including: cash, HQLA, and currency management; liquidity and funding management; interest rate risk management; financial analysis and modelling; and, financial reporting and control activities. He has previously worked at Wyelands Bank, Barclays, and Morgan Stanley. Josh’s specialism and expertise cover both capital and liquidity risk management.

Owen Selby

VP, Risk and Regulatory Consulting, Katalysys

Owen has over 10 years’ experience at the PRA supervising UK banks, most recently as a Senior Supervisor. He has overseen firms across the full spectr...

Owen has over 10 years’ experience at the PRA supervising UK banks, most recently as a Senior Supervisor. He has overseen firms across the full spectrum of prudential risks and governance and brings direct insight into supervisory expectations and regulatory decision-making. Having supervised both large and non-systemic banks, Owen has extensive experience reviewing ICAAPs, ILAAPs and RBPs, and contributing to the setting of firm-specific capital requirements. He supports firms in strengthening prudential frameworks and navigating supervisory engagement confidently.

Ravi Patel

Vice President – Risk & Regulatory Consulting, Katalysys Ltd

Ravi has specialised in internal capital and liquidity adequacy assessment process (ICAAP and ILAAP) and Recovery Planning for UK-based banks over 7 y...

Ravi has specialised in internal capital and liquidity adequacy assessment process (ICAAP and ILAAP) and Recovery Planning for UK-based banks over 7 years. He has designed the capital and liquidity stress testing for a number of small- and medium-sized banks. He is a qualified accountant (ACCA) and has a Bachelor’s degree in Accounting and Finance from Nottingham Trent University.

Risk Professionals of small and medium-sized banks, specifically those that are involved with stress testing as a part of the ICAAP and ILAAP.