Stress Tests as An Entrance to Measure Financial Strength and Its Role in Facing Banking Crises: A Case Study of the Iraqi Banking Sector

Abstract

The aim of the research is to measure the indicators of financial strength, represented by (capital adequacy, liquidity and profitability), and to indicate the basic stages that the process of applying stress tests goes through, and to indicate its role in facing banking crises. The research community was represented by the Iraqi banking sector, while the research sample included a sample of (15) private Iraqi commercial banks for the period from (2015-2020). Through a review of the financial and statistical analysis of the totality presented by the research, a set of conclusions and recommendations was reached, the most important of which can be derived from two groups of banks. To provide its services in times of crisis due to its commitment to local and international standards, which are an integral part of the culture of the bank, while the second group is exactly the opposite. This was reflected in the crystallization of the research axis in reaching a recommendation that the importance of adhering to the application of stress tests, as well as urging banks to abide by the application of international standards issued by international organizations, including the Basel 3 Committee, as well as adherence to the instructions issued by the Central Bank as a barrier that provides safety for the prevention of future crises.