The State Bank of Pakistan issued the revised guidelines on “Stress Testing” in an effort to further consolidate the risk management capacity of banks and development finance institutions (DFIs). According to BSD Circular No. 1 dated May 11, 2012, the revised guidelines, which are in accordance with international standards and improved capacity of banks/DFIs to perform such analysis, have been divided into three sections. Section 1 of the revised guidelines sets out standards for designing and implementing the stress-testing framework while Section 2 delineates the mandatory set of stress tests for credit, market and liquidity risk factors using sensitivity analysis. Section 3 provides guidance on optional stress tests for operational risk, Islamic banking, and advanced approaches, including scenario analysis, and reverse stress tests. All banks and DFIs have been recommended to submit the results of the stress tests as specified in Section 2 on the prescribed format of these guidelines to the Banking Surveillance Department (BSD) of the State Bank on quarterly basis, starting from quarter ending June 30, 2012, within 30 days of the close of each quarter.