STRESS TESTS- an argument on their reliability

A stress test, when used in financial institutions, is a measure of a firm’s/ portfolio’s ability to deal with an economical crisis. The test is based on a series of hypothetical ‘what if-‘ questions that would asses a firm’s condition during any rough patch. It was pressured upon after the 2008-09 financial crisis.


How does it work?

Let’s say, I have a car manufacturing company. Now taking the example of any economic emergency, what if the consumer demand falls by x% more? How will the firm deal with it? Does the firm have enough cash and reserves to survive in the midst of the rising liabilities?

Today,this analysis factor is known across the globe for its’ accuracy and efficiency.

Admist the coronavirus pandemic,the reserve bank of India analyzed a string of these stress tests to project the possible impact on bank balance sheets in the current economic scenario.



But the question is, are these stress tests really reliable when it comes to fulfilling their purpose?

The answer might be No.

How can I put my point?
Let me explain-

1)Unforeseeable situations can arise,( the covid pandemic being the biggest example of it,) which remain out of the bank’s control.

2) As the firm nears the time of these stress tests, it can easily have reserve stockpiles or cash in hand between that period of time to whitewash their image.

3)The stress tests emphasize too much on a singular scenario, like the covid pandemic, what if it happens again? Well, ofcourse any firm would be ready after 2020 to deal with a pandemic with reserves, but what about a situation when there’s more than just one of them?
There really is no guarantee or a foolproof way for them to envisage the future.

4) Anat admati, an economist and a professor at Stanford argues about how it’s not a clean chit of a bank’s financial health. When the banks say that their finance is pretty managed to market themselves, well, they wood say that, wouldn’t they?

To conclude, i would say stress testing is absolutely not wrong. But when the banks have to publish their results to the public, they might go one step forward, have the liberty to market it. Market the test that might be a hoax. To a public domain.

Is it really ethical?

RELIANCE INDUSTRIES : An upcoming Monopoly?

On August 28 Reliance acquired the retail giant- future group( parent company of big bazaar, Fbb etc) in a deal of a whopping 24,713 crores. It now has set to change the whole outlook of retail,wholesale, logistics and warehousing overview of the company. This gives them an access to roughly 2,000 stores across the country to be indulged in the big hefty business of upcoming jiomart.

Looking back to 2016, when jio was growing tremendously, the telecom company operators went from 14 to 4, while the other three ( airtel, vodafone etc) are still bleeding with heavy losses.

This creates a monopolistic situation in the market and its future.

And this is how it can be harmful to the consumers and competitors.


Talking about it’s competitors, shares of Dmart, aditya birla retail, V mart fell drastically. Now, as they’re consumer based industries, it restricts the entry of new firms too. India currently has about 12 million small grocery stores. Such a giant company pushes them out of business. With coming out of a pandemic one leg short, it will leave other retailers bleeding.

A monopoly isn’t always bad. But seeing the view of how reliance has a dominant stake in every major industry, it can easily exploit the consumers with higher prices which might lead to allocative inefficiency since it is the sole supplier in the future. Monopolies can gain political power, specifically in a country like India, and can have the ability to shape the society while being unaccountable too in the worst case scenario.

Design a site like this with WordPress.com
Get started