In finance, a stress test is an analysis or simulation designed to determine the ability of a given financial instrument or financial institution to deal with an economic crisis. Instead of doing financial projection on a "best estimate" basis, a company or its regulators may do stress testing where they look at how robust a financial instrument is in certain crashes, a form of scenario analysis. They may test the instrument under, for example, the following stresses:

This type of analysis has become increasingly widespread, and has been taken up by various governmental bodies (such as the PRA in the UK or inter-governmental bodies such as the European Banking Authority (EBA) and the International Monetary Fund) as a regulatory requirement on certain financial institutions to ensure adequate capital allocation levels to cover potential losses incurred during extreme, but plausible, events. The EBA's regulatory stress tests have been referred to as "a walk in the park" by Saxo Bank's Chief Economist. This emphasis on adequate, risk adjusted determination of capital has been further enhanced by modifications to banking regulations such as Basel II. Stress testing models typically allow not only the testing of individual stressors, but also combinations of different events. There is also usually the ability to test the current exposure to a known historical scenario (such as the Russian debt default in 1998 or 9/11 attacks) to ensure the liquidity of the institution. In 2014, 25 banks failed in a stress test conducted by EBA.

A bank stress test is a type of simulation that evaluates a financial institution’s ability to withstand adverse economic or market conditions by examining its balance sheet. Large international banks began conducting internal stress tests in the early 1990s.

In 1996, the Basel Capital Accord was amended to require banks and investment firms to carry out stress tests to assess their ability to respond to significant market events. Prior to the 2007–2008 financial crisis, however, stress testing was generally used only for internal risk management and self-assessment rather than for external regulatory oversight.

Beginning in 2007, governmental regulatory bodies became interested in conducting their own stress tests to insure the effective operation of financial institutions. Since then, stress tests have been routinely performed by financial regulators in different countries or regions, to ensure that the banks under their authority are engaging in practices likely to avoid negative outcomes. In India, legislation was enacted in 2007 requiring banks to undergo regular stress tests. In October 2012, U.S. regulators unveiled new rules expanding this practice by requiring the largest American banks to undergo stress tests twice per year, once internally and once conducted by the regulators. Starting in 2014 midsized firms (i.e., those with $10–50 billion in assets) are also being required to conduct Dodd-Frank Act Stress Testing. In 2012, federal regulators also began recommending portfolio stress testing as a sound risk management practice for community banks or institutions that were too small to fall under Dodd-Frank's requirements. The Office of the Comptroller of the Currency (OCC) in an October 18, 2012, Bulletin recommends stress testing as a means to identify and quantify loan portfolio risk. The FDIC made similar recommendations for community banks.

Since the Federal Reserve began conducting Dodd–Frank Act Stress Tests, post-stress capital levels across large banking institutions have generally increased. The Federal Reserve has also continued to expand its expectations over time by introducing more sophisticated and challenging stress-testing scenarios.

Statistician and risk analyst Nassim Taleb has advocated a different approach to stress testing saying that stress tests based on arbitrary numbers can be gamed. A more effective test is to assess the fragility of a bank by applying one stress test and scaling it up, which provides an indicator of how sensitive a bank is to changes in economic conditions.

Another form of financial stress testing is the stress testing of financial market infrastructure. As part of Central Banks' market infrastructure oversight functions, stress tests have been applied to payment and securities settlement systems. Since ultimately, the Banks need to meet their obligations in Central Bank money held in payment systems that are commonly operated or closely supervised by central banks (e.g. CHAPS, FedWire, Target2, which are also referred to as large value payment systems), it is of great interest to monitor these systems' participants' (mainly banks) liquidity positions.