An analysis of a bank's ability to endure a hypothetical adverse economic scenario.
This list covers formal bank stress testing programs, as implemented by major regulators worldwide. It does not cover bank proprietary, internal testing programs.
A bank stress test is an analysis of a bank's ability to endure a hypothetical adverse economic scenario.
Stress tests became widely used after the 2008 financial crisis.[1]
Example
For example, in the U.S. in 2012, an adverse scenario used in stress testing was all of the following:[2]
A private conference call was held with banks to notify them of a new, two part information release by the Fed[19]
March 7, 2013 – Banks will be privately notified of the Fed's tentative decision on capital distribution plans.
Banks receiving a "no" will then have a 48 hours to privately resubmit to the Fed a reduced a distribution plan.
March 14, 2013 – the Fed will publicly disclose final decisions on requests for capital distributions
The week of private negotiations between the bank and the Fed will allow banks to adjust their request downward to what the Fed will allow. This was specifically designed to allow banks to avoid "embarrassing capital-plan rejections"
Shareholder lawsuits are expected if banks fail to disclose capital distribution plans and Fed rejections (even if labeled "informal") as the majority of shareholders and prospective shareholders regard bank dividend and share buyback plans, and limits, to be extremely material information.
Banks may not follow Fed advice and release capital distribution plans in advance of March 14.[20]
^"Stress testing:: A look into the Fed's black box". pwc.com/en_US/us/financial-services/regulatory-services/publications/assets/dodd-frank-act-stress-testing-ccar.pdf. PwC Financial Services Regulatory Practice, April 2014.