Should you be stress testing your borrowers?
Abstract: Most banks are familiar with the concept of stress testing: By evaluating the impact of adverse external events on a bank’s earnings, capital adequacy and other financial measures, stress testing can be a highly effective risk management tool. And while community banks generally aren’t required to conduct stress testing, banking regulators view it as a best practice. This article discusses the ins and outs of stress testing. A sidebar explains Canada’s mortgage stress-testing law.