What is a bank stress test? How regulators check banks can survive a crisis
By SendPay Business · · 2 min read
A bank stress test is an exercise where a regulator imagines a severe crisis, such as a deep recession, a crash in house prices and rising unemployment, and checks whether each large bank would still have enough capital to keep lending and stay open.
Who runs them
In the UK, the Bank of England runs stress tests on the largest banks. In the US, the Federal Reserve runs them for large banks, and in the euro area the European Banking Authority and the European Central Bank coordinate them. Results for the big banks are usually published.
How a stress test works
- The regulator writes a severe but plausible scenario, such as falling house prices, a jump in unemployment and a market crash.
- Each bank works out how much it would lose on loans and investments in that scenario.
- The regulator checks the bank's capital left over after those losses.
- Banks that fall short may have to raise more capital or hold back dividends.
Why it matters to customers
Stress tests are one of the tools that make bank failures and bank runs less likely. They sit alongside capital requirements and deposit insurance as ways of keeping savers' money safe.
Where SendPay fits
SendPay is not a bank. Platforms built on SendPay are powered by licensed partners, and SendPay tells you in writing which licences apply to your platform before you pay.
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Build my platform →Questions people ask
Could a bank cover 30 days of stress?
Work out its liquidity coverage ratio against the Basel III minimum.
Bank liquidity calculator →How strong is a bank's capital?
Work out capital and leverage ratios against the Basel III minimum.
Bank capital ratio calculator →What are capital requirements?
The minimum capital a bank must hold against its risks.
Bank capital requirements →Can I launch my own money app?
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.