stress test

An examination of a bank, company or even a specific financial instrument into whether it can hold up under difficult situations or unexpected circumstances while staying within the guidelines of the established regulation. They are usually carried out by central banks or regulators, more so now after the latest financial crisis.

For a firm, the balance sheet is analyzed to detect whether, with a bank for example, its capital ratios are adequate given the level of its risk exposure.

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Fed. "stress tests" show health of banks

Fed. "stress tests" show health of banks