Today, the Federal Reserve answered some questions on the bank “stress test”, which they say is being conducted, “to determine if the largest U.S. banking organizations have sufficient capital buffers to withstand the impact of an economic environment that is more challenging than is currently anticipated.”
The capital assessment will cover two economic scenarios: a baseline scenario and a more adverse scenario:
The government’s so-called “adverse scenario” is no “black swan”. How about GDP down 8%, Unemployment at 14% and house prices down another 40%. What would the stress on the banks be under that “adverse scenario?”
