Stress Test
Scenario analysis to gauge a bank’s resilience under adverse economic conditions.
Detailed Description
Stress Test
What is the main objective of a stress test?
The main objective is to determine whether financial institutions have sufficient capital and liquidity to withstand financial shocks.
How has stress testing changed since the 2008 financial crisis?
It has become an integral part of the regulatory landscape with established guidelines and requirements for conducting tests.
What are the three types of stress tests mentioned?
The three types are Scenario Analysis, Sensitivity Analysis, and Reverse Stress Testing.
What key metrics are assessed during stress testing?
Key metrics include Capital Ratios, Liquidity Ratios, Net Income, and Loan Loss Provisions.
What challenges do stress tests face?
Challenges include reliance on assumptions, complexity of financial systems, and the need for timely and accurate data.