Reverse Stress Testing
Also called: reverse stress test, break the bank test
Reverse stress testing starts from failure and works backwards: what set of events would make this firm non-viable? It's the antidote to ordinary stress tests, which choose scenarios management already finds plausible and therefore already survives. Regulators require it precisely because it forces attention onto the unimagined combinations — correlated shocks, funding withdrawal and a reputational hit arriving together.
Want more than a definition? Learn it in Risk Arena →