Stress Testing in Banks

Stress testing in banks is a risk management practice that evaluates how banks can withstand economic shocks or financial crises. It involves simulating different adverse scenarios, such as a severe recession or a sudden drop in asset values, to assess the bank's financial stability and capital adequacy. By identifying potential vulnerabilities, banks can better prepare for difficult situations, ensuring they have sufficient resources to manage risks and maintain operations. Overall, stress testing helps strengthen the banking system and protect consumers' deposits.