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Finance & Banking vocabulary · Risk Management

Stress test

Meaning in finance & banking, with examples

nounCommon term

In finance & banking, stress test means: An analysis that checks whether a bank would have enough capital and liquidity to survive a severe but possible shock, such as a deep recession.

In Turkish: stres testi

How it is used

Used in risk management and supervision. Banks run their own stress tests, and authorities such as the Fed, the EBA and the ECB run them across the sector. A bank passes or fails a stress test, and the results guide its capital plans.

Example sentences

  1. In our stress test, the lira loses 30 percent of its value and unemployment doubles.

  2. All the large banks passed the regulator's stress test this year.

Common collocations

  • run a stress test
  • pass a stress test
  • stress test scenario
  • stress test results
  • capital adequacy ratioA bank's capital divided by its risk-weighted assets. It shows whether the bank has enough capital to absorb losses; Basel rules require at least 8% before extra buffers.
  • liquidityHow easily an asset can be turned into cash without losing value, or how much cash and easily sold assets a bank or company has to meet its payments.
  • market riskThe risk of losses caused by changes in market prices, such as interest rates, exchange rates, share prices and commodity prices.
  • regulatorA public body that makes and enforces the rules for an industry. Banking regulators license banks, set capital rules and inspect banks.

More terms: Risk Management

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This page explains English vocabulary for learners. It is not financial advice.