It is, according to the FT’s U.S. Editor-at-large, Gillian Tett, one of the smartest ideas to emerge in finance for a long time”. The idea in question is “reverse stress-testing”, and in the words of Fed vice-chairman, Michael Barr, who oversees supervision, it works like this (as quoted by the FT): “Instead of thinking of a stressful scenario and then seeing how it would play out through, say, the balance sheet of a firm, you look at a bank and you say, well, what would it take to really break this institution?”

It’s an idea that’s gaining ground as perhaps the best way for bank boards and their supervisors to safeguard individual institutions, as well as the system as a whole. In our view, there are three steps to improving risk oversight at banks. You can read all about them in Alla Gil’s latest op-ed for the Global Association of Risk Professionals (GARP). Read it here.