Fed Bank Stress Tests Out--Assume An Apocalypse

The new Federal Reserve bank stress tests will be hard to pass–if not impossible.

The Fed released the guidelines:

The supervisory stress scenario for CCAR (Comprehensive Capital Analysis and Review) 2012, which was designed in November 2011, depicts a severe recession in the United States, including a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices. The supervisory stress scenario is not the Federal Reserve’s forecast for the economy, but was designed to represent an outcome that, while unlikely, may occur if the U.S economy were to experience a deep recession at the same time that economic activity in other major economies contracted significantly.

Those measures are in many ways worse than the circumstances of the last recession, which very nearly took the US banking system under.

Large US banks are expected to be able to raise dividends once the tests are finished. However, bank stock fell today, which is a sign that Wall St. may not be as optimistic as bank executives.