This exercise tests your understanding about stress testing. Which of the below statements regarding bank stress testing is true? First up, a stress test imposes a number of different scenarios on a bank holding company and attempts to establish core capital ratios under the respective scenarios. True or false? Well, this is a true statement. This is exactly what a stress test is trying to do. What happens to our core capital ratios when scenarios happen? True statement. Next statement is stress test will reveal how competitive a bank is. That's a false statement. A stress test is not about competitiveness of the bank but of the strength of the balance sheet under different scenarios. Next statement, if the outcome of a stress test reveals that core capital ratios for a bank could fall dramatically, the Fed can order banks to stop planned dividends. This is a true statement. If the capital structure looks too weak in the stress testing, the Fed can stop planned dividends.

And finally, scenarios test for changes in interest rates, economic activity, and stock market returns. That's also a true statement. Those are some of the factors that will be stressed in stress testing.