The Back Testing Process

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So how do you determine if you were “on Target” with assumptions previously made in the model?

 

Each bank will be different but we have put together a process that you can institute to help you determine the validity of assumptions and the reasons why actual results differ from the expectations you had in the past.

 

Bank Testing requires:

 

•Planning of long-term / short-term projections

 

•Setting a Timeframe for Evaluation

 

•Preparing the Tools

 

•Documenting Events

 

•Evaluation the Results

 

Back testing requires planning & preparation at your institution.  Several things need to be determined:

 

1.Do you want to look at long-term or short term projections (or both)?
2.Set a date in the future to base the evaluation upon.
3.Have the tools and reports ready for use.
4.Prepare to document the relevant events that occur during the evaluation period.
5.And plan how you will evaluate and use knowledge for future projections.

 

All of this planning may involve the relevant management staff or committees at your institution.

 

The Back Test process will be divided into 3 sections:

 

•Beginning of the Testing Period

 

•During the Testing Period

 

•End of the Testing Period