The Australian Prudential Regulation Authority has called on banks and other ADIs to have their stress testing frameworks independently reviewed. The regulator plans to increase the frequency and depth of stress testing, including annual testing for large ADIs starting this year.And it plans to include operational and climate change risks in the process.APRA has released general findings of a qualitative assessment of the internal stress testing capabilities of 28 authorised deposit-taking institutions it conducted during the 2018/19 financial year. It reviewed the ADIs' most recent stress tests and their most recent internal capital adequacy assessment process.It found that most Group 1 ADIs had stress testing frameworks with formalised governance structures, clear roles and accountabilities, and documentation to support most aspects of their stress testing.However, the frameworks were not always subject to regular independent reviews.Group 1 ADIs include the major banks and AMP Bank, Bank of Queensland, Bendigo and Adelaide Bank, Citi, HSBC Bank Australia, ING Bank, Macquarie Bank, Rabobank Australia and Suncorp.The ADIs in Group 2 generally did not have specific frameworks for stress testing and instead relied in part on various risk-specific management frameworks and internal capital adequacy assessment documentation.Group 2 ADIs include ACCU, Auswide Bank, Bank Australia, Bank of China Australia, Beyond Bank, CUA, Greater Bank, Heritage Bank, IMB, ME Bank, MyState, Newcastle Permanent, Police & Nurses, Qudos Mutual and Teachers Mutual Bank.APRA said best practice examples included having a formalised stress testing process, enacting it, subjecting it to independent review and making sure there was broad engagement with the process across the organisation.When it came to scenario development, APRA said most Group 1 ADIs had well considered parameters, with scenarios that covered all or most material risks. The process at most Group 2 ADIs was less structured, with less sophisticated scenarios.APRA said best practice examples included the development of scenarios after "inputs and challenges" from across the organisation. Scenarios should be "severe yet plausible" and tailored to target the entity's risk profile.There was a tendency for ADIs to use previous APRA stress tests scenarios as templates.The regulator said Group 1 ADIs generally used the results of the stress tests to inform capital and risk management decisions.  Group 2 ADIs were not so good at this.Best practice included using details and discussion of the stress test results in internal capital adequacy assessment.APRA said that to complement the ongoing improvement in stress testing capabilities, it would move to greater frequency and depth of stress testing for ASDIs. It also plans to test resilience to broader scenarios, including the impacts of operational and climate change financial risks.