A bank stress test determines how well a bank might withstand an economic crisis such as the one that struck the world after the 2008 financial crisis. The stress test either analyzes the bank or puts it through a simulation. The simulation includes either some of the things that happen during a crisis, a catastrophic event, or both.
An economic crisis usually follows a financial crisis. Unlike a financial crisis, in which just the finance and banking sectors are affect, the whole economy suffers in an economic crisis.
The tests evaluate whether a bank has enough capital to withstand adverse events. It also looks at staff training. In other words, it determines whether the staff knows what to do in a crisis.
Not only do the stress tests want to determine whether the banks would survive, but also whether they would continue lending. During a crisis, it is vital that households and businesses have access to loans.
Banks carry out stress tests internally. Additionally, regulatory bodies also perform the tests.
Examples of regulatory bodies are the UK Financial Services Authority, the European Banking Authority, and the US Federal Reserve. Additionally, the International Monetary Fund carries out a stress test.
Since 2008, most countries’ authorities have been subjecting their banks to simulated financial crises. Their aim is to determine how well or badly their banks would cope.
Scenarios in a bank stress test
Bank stress tests may include the following scenarios:
- What would happen if US GDP dropped by 5 percent? Would the bank survive? Furthermore, would the bank be able to continue lending?
- How would the banks cope if interest rates increased by 2 percent?
- Would the banks be able to withstand a 50% decline in gold prices?
- What would happen if gas prices rose by 250%?
Bank stress tests – recent developments
United States
In the 2025 stress tests, the Federal Reserve found that US banks can withstand severe shocks. In a worst-case scenario, unemployment might rise from about 4.1% to 10% by Q3 2026, and property values could drop by roughly 33% for homes and 30% for commercial real estate. Despite these pressures, banks hold enough capital to absorb losses and continue lending. Meanwhile, the baseline scenario projects steady growth with only modest changes in inflation and interest rates, highlighting that strong capital buffers built post-crisis help sustain credit flows even during downturns.
United Kingdom
Recent stress tests have confirmed that the UK banking system remains robust. The Bank of England and the Prudential Regulation Authority (PRA) have updated their evaluation methods, and the latest desk‐based stress test, as outlined in the November 2024 Financial Stability Report, indicates that even under severe economic shocks, major banks maintain strong resilience.
Note: These summaries are based on the most recent publicly available information from the Federal Reserve and the Bank of England. For the latest detailed results and any subsequent updates, please refer to their official publications and websites.
List of bank stress tests
Asia
- Monetary Authority of Singapore – the Annual Industry-Wide Stress Testing exercise
- International Monetary Fund – Financial System Stability Assessment Update (FSAP)
- China Banking Regulatory Commission – CARPLES risk indicators framework
Europe
- Financial Services Authority – Stress and Scenario Testing
- European Banking Authority – European Union bank stress test
United States
- Federal Reserve System – Comprehensive Capital Analysis and Review (CCAR) / Dodd-Frank Act Stress Tests
Video – The importance of bank stress tests
Paul Tucker, from Harvard Kennedy School of Government, talks about how bank supervision has been opaque to the public. He explains how an annual stress test’s results can transform the accountability of central banks.