The stress test is a supervisory instrument that FINMA applies to a selection of prudentially supervised institutions. It serves to determine the impact of a potential crisis on their capital and solvency and to ensure that they have sufficient capital and liquidity buffers in place to withstand unforeseen circumstances at any time. If an institution fails a stress test, FINMA can, for example, order it to reduce risk positions or strengthen its capital base.
This supervisory instrument is based on the "Principles for sound stress-testing practices and supervision" published by the Basel Committee on Banking Supervision. These state that a distinction must be drawn between stress tests concerning the entire bank and those that are specific to certain products or portfolios. Examples of the latter include stress tests for interest rate risks and for credit risks in the area of mortgage loans. Here, a bank's corresponding exposure is determined and analysed under adverse conditions.
Stress tests are normally carried out for several supervised institutions at the same time so that FINMA can draw comparisons and thus gain valuable insight into the risk profile of institutions operating on the financial market.