Stress test
BankingDefinition
Hypothetical scenario applied to a bank or portfolio to estimate losses under severe but plausible adverse conditions. CCAR is the formal Fed test for major banks; firms also run internal stress tests.
Example scenarios: 2008-style financial crisis, 1970s-style oil shock, sudden 200bp rate spike. Stress test results determine bank capital plans (dividends, buybacks). Failures are public and embarrassing.
Example scenarios: 2008-style financial crisis, 1970s-style oil shock, sudden 200bp rate spike. Stress test results determine bank capital plans (dividends, buybacks). Failures are public and embarrassing.