stress test guidelines

Stress test guidelines are procedures designed for financial institutions to assess their ability to withstand difficult economic conditions. They involve simulating adverse scenarios—like economic downturns or market shocks—to evaluate how the bank's assets, liabilities, and capital levels would hold up. These tests help identify potential vulnerabilities, ensuring banks can manage risks and remain stable during crises. Regulators require regular stress testing to promote sound banking practices and protect the financial system from systemic failures. Overall, they are tools to ensure banks are prepared for challenging economic environments.