liquidity stress testing

Liquidity stress testing is a process that financial institutions use to assess their ability to meet short-term financial obligations during challenging scenarios, like economic downturns or sudden market disruptions. It involves simulating adverse conditions to see if the institution has enough cash or liquid assets to cover unexpected withdrawals or payments. This helps ensure the institution remains stable and continues to operate smoothly, even in stressful times, by identifying potential liquidity gaps and preparing plans to address them before problems arise.