Large Bank Examination Workshop February 2026

Stress Test Techniques

• Sensitivity analysis 

Defined by shift in one sensitivity variable  Relatively easy to define and implement – often used at trading desk and business line level • Simulation  Shifts in several variables have to be used in order to simulate historical events  Use of stressed correlations between risk types is essential • Reverse Stress Tests  Starting with the point at which the bank fails and then “rewinding” to determine key causes

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Knowledge Check Which of the following are commonly components of stress testing programs? a) Sensitivity analysis b) Simulation c) Reverse stress tests d) All of the above

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