The Role of Stress Testing in Ensuring Financial Stability in Banks

Background Stress testing is a risk management tool used by banks and regulators to assess resilience against extreme financial shocks (e.g., economic downturns, market crashes). Post the 2008 financial crisis, stress testing became mandatory under Basel III and Dodd-Frank Act to prevent bank failures.

Examine how stress testing enhances financial stability.

Compare stress testing frameworks in US, EU, and India.

Analyze challenges in implementation.

Research Regulatory Guidelines (Basel III, RBI, Fed).

Collect Bank Stress Test Results (e.g., CCAR, EBA reports).

Interview Risk Managers (if possible).

Analyze Trends (capital ratios pre/post stress tests).

Compare Different Countries’ Approaches.