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Answer: stress test
## Explanation This scenario describes a **stress test**: - **Stress test**: Involves assessing the impact of extreme but plausible scenarios that haven't necessarily occurred in the past. Losing one of the two dominant industries is an extreme scenario that could severely impact the regional economy and loan performance. - **Historical scenario analysis**: Would use past events that have actually occurred, but this scenario (losing one of the two dominant industries) hasn't happened historically. - **Analysis of loan portfolio duration**: Measures interest rate sensitivity, not the impact of economic shocks on loan performance. Stress testing is specifically designed to evaluate how financial institutions would perform under adverse conditions, making it the most appropriate choice for assessing the impact of losing a major regional industry.
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Alessia Rossi is the chief risk officer for Bellotti Bank, which operates in a region dominated by two established industries. Historically, these industries have provided stable employment to the region. Rossi would like to undertake an assessment of how the bank's loans would perform if the regional economy lost one of these industries. The best choice for this assessment is a(n):
A
stress test
B
historical scenario analysis
C
analysis of loan portfolio duration
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