Stress Testing applies extreme yet realistic shocks—such as severe recession, market crashes, or operational disruptions—to assess capital adequacy, liquidity, and business viability. Unlike Value at Risk based on historical distributions, stress tests explore tail events and concurrent risk factor movements. Regulatory authorities often mandate stress testing for financial institutions, specifying scenarios and capital planning responses. During the 2020 pandemic, banks conducted stress tests assuming 10% GDP contraction, 15% unemployment, and 30% commercial real estate value decline, revealing capital needs that informed dividend suspensions and credit reserve increases.