# How does 'stress testing' affect the stability of financial institutions?

> Stress testing evaluates how a financial institution's mortgage portfolio would fare under tough economic times.

Category: Regulatory
Last verified: 2026-02-18
Source: https://ratellow.com/faqs/regulatory/how-does-stress-testing-affect-the-stability-of-financial-institutions

## Answer
Stress testing evaluates how a financial institution's mortgage portfolio would fare under tough economic times. OSFI expects FRFIs to have a robust stress-testing program to assess potential impacts on their mortgage portfolio from unlikely, but plausible, scenarios. Think of it as a financial 'what if?' exercise.

## Institutional highlights
- Lenders must have a way to double-check their methods for deciding who qualifies for a mortgage.
- Lenders need to constantly review and adjust how they assess risk on their existing mortgages.
- Stress test results should significantly influence how lenders manage their finances and prepare for potential issues.
- Lenders need to keep a close eye on reverse mortgages when planning their finances and preparing for different scenarios.

## Related guide
- https://ratellow.com/guides/osfi-stress-test-explained

## Sources
- OSFI exempts uninsured mortgage straight switches from the prescribed MQR and implements portfolio LTI limits — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/osfi-exempts-uninsured-mortgage-straight-switches-prescribed-mqr-implements-portfolio-lti-limits
- Updates After Approval — https://www.sagen.ca/ups/underwriting-documentation/#updates-after-approval
- Mortgage Insurance Prepay and Re-Advance Policy — https://www.sagen.ca/ups/underwriting-documentation/#mortgage-insurance-prepay-and-re-advance-policy-638f55989d20b
- Model validation and stress testing — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017#2.5.3