Fed asks banks for stress tests

[pmbug]

The Federal Reserve is asking 30 big banks to make sure their capital can withstand a deep recession in which the unemployment rate rises to 12%.

The Fed, which first required big banks to conduct “stress tests” in 2009, laid out three scenarios lenders have to test against. The goal is to ensure that the firms have enough capital to continue operations during stressful economic times.

The Fed stressed they were not making economic forecasts “but rather hypothetical scenarios designed to assess the strength of financial institutions in stressful economic environments.”

In addition to considering an unemployment rate of roughly 12% — up from 7.9% in October — in the most severe recession scenario, banks must evaluate how their capital buffers would withstand real GDP declining by around 5%.

Banks will also have to test for equity prices that would fall by more than 50% over the course of the recession, with house prices declining more than 20% and with commercial real estate prices falling by a similar amount.
...

http://www.marketwatch.com/story/ba...2-unemployment-2012-11-15?link=MW_latest_news



Just like last time, I'm guessing the results will be a farce.

 

[benjamen]

I have the great joy of actually doing one of these for a mid-major bank. One scenario is essentially a repeat of the '08 crash. The other is a scenario of a 70's type stagflation situation.

It is fun to do all this work just to have it reviewed by..
a) people with little to no experience working in non-government jobs..
It is fun to read their models that are full of bad assumptions, modeling methods that have been disproven, and generally amusing to those that actually know how to do this work
b) people that already have the "results" of this test before we actually do the work..
Back when the FED was deciding on which banks needed to be bailed out, they had every bank do a stress test to see which banks actually needed the money. We provided a massive amount of data and analysis showing we had no need for bail out money... less than 12 hours later were told our analysis showed we needed lots of bail out money like every other bank in the country

I really need to take my skills to another, less corrupt industry...

 

[bushi]

:rotflmbo: if the consequences were not disastrous, that would actually read like a great comedy!

I was working for the IT company back in Poland, that was "winning" loads of government contracts. I know that kind of shit first hand - we were doing "volumetrics" of the future hardware/software systems that they "needed to implement", and we were doing these estimates for as long, until we arrived at the expected results, of XXX money needed for the project.

Obviously, if/when anybody asked, why the government need to spend XXX money amount on such & such new IT system, the answer was ready: "the best experts in the country have provided us with such estimates, here, have some estimates within given assumptions"
:rotflmbo:

One real world experience I gained from it all (apart from professional experience, which all other stuff aside, was sometimes quite cool), is: I HATE ALL KINDS OF GOVERNMENT, they are the lowest life forms and uterly corrupted scumbags(!)