Versions

 

ST-1.1.2

Stress testing is an essential risk management tool used to assess a bank's potential vulnerabilities to stressed business conditions. Stress testing involves the use of various techniques to assess a bank's existing and potential vulnerability (typically in terms of its profitability, liquidity and capital adequacy) to 'stressed' business and economic conditions and plays an important role in the management of risk by banks. Effective stress testing enables a bank to quantify adverse unexpected outcomes related to a variety of risks and facilitate the decision to put in place risk mitigation plans to safeguard its safety and soundness. This includes providing a sufficient amount of financial resources (including capital and liquidity) and implementing other risk mitigation strategies that are required to withstand losses arising from a particular stressed scenario.

July 2018