What does stress testing entail for banks?

Stress testing for banks involves simulating adverse economic conditions to assess their resilience. This process is crucial for understanding how a bank would perform under various scenarios that could negatively impact its financial stability, such as a severe recession, a sudden increase in interest rates, or an operational disruption. By conducting stress tests, banks can identify vulnerabilities in their balance sheets, evaluate the adequacy of their capital, and develop strategies to mitigate potential risks. This proactive approach enables banks to prepare for unforeseen challenges and ensure they remain solvent and operational during times of economic distress.

The other options do not align with the primary objectives of stress testing. Evaluating marketing strategies, measuring customer satisfaction metrics, and calculating profit margins are important for different aspects of a bank's operations but do not focus on risk management or financial resilience under stress scenarios.