We don't need to get stress to carry out a stress testing of a Corporate Portfolio. While the Banks derive significant benefit from it, it is regulators who will be really happy that Banks are carrying out such an exercise.

In order to really provide the advantage and act as an effective risk management tool, stress and scenario analysis must consider the interplay of various scenarios and how these impact different portfolios. The assumptions that go in such stress testing models are crucial, though. Stress testing must not be viewed as a binocular for finding Black Swans. It is merely a tool to ensure that large loss events can help sustain the business.

Do download and read this excellent article from GARP – "Stress Testing: A Robust End-to-End Approach"

Download: http://www.garp.org/media/837482/dec%2019-26_creditrisk.pdf