Professor Eamonn Walsh:

The trick with a stress test is to understand what are the risks. If one were to look back and think that the risks were primarily the residential mortgage book then we would specify stress tests that say that if residential property prices change by a certain amount, we can ask what will happen to bank profitability. However, if it turns out that, instead of being primarily a residential property book, it is also a significant commercial book with significant speculative lending and significant concentration to individual borrowers, the way we would conduct stress tests and the kinds of stresses we would like to impose on the model would be entirely different. The perception of risk is important in terms of determining how we ultimately conduct the stress test.