Featured:
Allergies
Grilling Guide
eHow Now Blog

Financial Stress Testing

Financial Stress Testing thumbnail
Financial stress-testing helps a bank manage risk.

A firm's leadership is responsible for ensuring its economic health and operating stability in the short and long terms. Senior executives regularly initiate financial stress tests to gauge the company's operating stability under various scenarios.

  1. Definition

    • Financial stress-testing, or financial scenario testing, is a business procedure in which corporate heads assess a company's ability to withstand various economic situations (see Reference 1). Senior management usually analyzes the impact of stress-testing on operating activities and the accounting and financial reporting processes.

    Process

    • Department heads can test a company's financial stability by selecting a set of financial statements or performance indicators and evaluating outcomes under various scenarios. For example, a bank's risk manager may test the company's economic resistance by gauging corporate liquidity levels under specific conditions, such as national gross domestic product falling under three percent or unemployment rates topping 10 percent.

    Importance

    • Financial stress-testing plays an important role in modern economies, especially in the banking arena (see Reference 2). It allows government regulators, such as the Federal Reserve, to ensure that financial institutions have proper capital levels. Stress-testing procedures also help banks manage risk.

Related Searches:

References

  • Photo Credit finance image by Chad McDermott from Fotolia.com

Comments

You May Also Like

  • Finance Stress Testing

    A company's leadership puts into place effective risk management techniques to prevent operating losses resulting from adverse regulatory initiatives and economic ...

  • Economic Capital Stress Testing

    Economic capital stress testing is the presenting of various economic scenarios to a bank to determine whether or not the institution has...

  • Stress Testing in Banking

    Federal regulators examine financial records of the banks in question. They then project future economic conditions and decide if they feel the...

  • Market Risk & Stress Testing

    In the wake of the United States housing-industry collapse and the global financial turmoil that followed in 2008, investors, and by extension...

  • Tools for Business Scenario Planning

    Some companies use scenario planning to analyze possible product or service changes. For instance, ABC company might use scenario planning before accepting...

  • Liquidity Risk Stress Testing

    Liquidity risk is the risk that a business won't be able to sell its assets if it needs to. This is chiefly...

  • How to Manage Small Business Financial Stress

    You can turn financial stress into business success by using good financial, time and business management skills. By being realistic and applying...

  • The Value of At-Risk Stress Testing

    Stress tests are administered to identify potential heart problems. The tests usually have a 20-minute duration and the patient is connected to...

  • How to Use Ratios to Define Financial Stability in Business

    Ratios display a company's state of health. Problems with financial stability, often hidden after a brief glance at financial statements, can be...

  • How to Evaluate the Effectiveness of Psychological Tests

    Psychological tests are used by psychologists and other therapy professionals to help diagnose certain conditions. Autism, ADHD, ADD and Alzheimer's disease are...

  • System Stress Testing

    Stress testing involves subjecting a system to unusual or unreasonable loads to determine at what point the system will crash in either...

  • Webserver Stress Testing

    The purpose of a webserver stress test is to see how a webserver performs when it has to process requests from thousands...

  • How to Cope with Financial Stress

    The inevitable stress that stems from financial responsibility is the universal plague of mankind. This article will address coping strategies to make...

  • Difference Between Echocardio Stress Test & Nuclear Stress Test

    Stress tests examine the effect that exercise has on the heart, according to the U.S. National Institute of Medicine. The test measures...

  • Persantine Nuclear Stress Test

    Doctors use a nuclear stress test to measure blood flow to the heart and main coronary arteries. The test is also used...

  • Corporate Finance Research Topics

    Corporate Finance Research Topics. Corporate finance research topics cover a variety of fields and are usually taught in advanced programs such as...

  • College Life & Stress

    College is a time for change, as most college students encounter a new environment, new challenges, and new people. Most college students...

  • Nuclear Stress Test Vs. Stress Test

    Stress tests and nuclear stress tests are used by cardiologists to anaylze the health of your heart. Different tests are indicated depending...

  • Stress & Volume Testing

    To ensure an application or software program is ready for use and free of any problems, stress and volume testing is performed....

  • Sample Accounting Procedures

    Accounting is the process of recording financial business transactions in a company's general ledger. This information is then used to prepare financial...

Related Ads

thumbnail
Featured