Frequent Stress Tests
with Mayur Choudhary and Zhen Zhou
Last updated: March 2026
under review
Abstract: Bank supervisors employ stress tests and disclose valuable information about banks to the stakeholders. Such tests are also conducted frequently. A credible stress test design must incorporate the stakeholders’ strategic responses to test results and ensure that a bank that passes a stress test does not subsequently fail, even under the most adverse equilibrium. To study credible stress tests, we analyze bank run as a canonical regime change game under incomplete information and asynchronous moves. We find that a higher testing frequency reduces the need for stricter test stringency to maintain credibility. We then characterize the optimal credible stress test policy and demonstrate its dependence on model primitives.
Presentation (by one of the authors): 7th Bristol Workshop on Banking and Financial Intermediation, Bank of England Financial Stability Seminar, Chinese
Finance Research Conference (CFRC), Econometric Society meetings, Fudan Workshop on Economic Dynamics, Stony Brook Game Theory meetings, Kelley School of Business, SFS Cavalcade Asia-Pacific 2025, SWUFE