Stress Testing is at the heart of the risk management discipline. Policy makers and regulators in the EU and US require from financial institutions to demonstrate evidence of their solvency in accordance to a set of stringent yet uniformly applied forward looking testing standards.
Financial institutions conducting stress tests not only for regulatory compliance but also for improving their risk management and business decision making processes were found to be better positioned and emerged stronger from the recent financial crisis. The practical applications of stress testing can be as instructive to business-line managers making operational decisions as they are to top executives making strategic ones. Properly conceived and executed, stress testing makes institutions more efficient and better informed about what drives risk at every level of the organization.
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