Why do we need stress tests? Since the financial crisis, stress tests have become the main instrument of bank supervision. In stress tests, supervision interacts with regulation and bank capital requirements. Research highlights the role of stress-test supervision in dampening the incentives of banks to take risks, especially when capital requirements are not effective.
In December, UK bank executives breathed a sigh of relief after they all passed the annual Bank of England stress tests. It’s reassuring for consumers that financial organisations are far more able to survive another crisis now that they have
The 31 largest banks of the United States received at least one thumb up from the US Federal Reserve after sailing through the first phase of their most recent round of stress tests, legislated under the Dodd-Frank Act.