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US banks to face severe recession scenario in Fed stress tests
03 February 2017
Scenarios of the US unemployment rate rising to 10% will be part the checks
Wall Street banks will have to prove they can survive a
severe global recession as part of an annual test by the
Details of the Fed's plans for 2017's Dodd-Frank Act stress
test exercises were revealed on Friday.
The tests are a forward-looking assessment to help assess
whether firms have sufficient capital to absorb losses.
Scenarios of the US unemployment rate rising by about 5.25
percentage points to 10% will be part the checks this year, as
well as heightened stress in corporate loan markets and
commercial real estate markets.
Thirteen of the largest and most complex bank holding
companies, including JP Morgan, Goldman Sachs, will be subject
to both a quantitative evaluation of their capital adequacy and
a qualitative evaluation of their capital planning
The central bank announced earlier this week that twenty one
firms with less complex operations will no longer be subject to
the qualitative portion of what's known as
the Comprehensive Capital Analysis and Review (CCAR).
Six bank holding companies with large trading operations
– Morgan Stanley, Goldman, Citi, Bank of America, JP
Morgan and Wells Fargo - will also be required to factor in a
global market shock as part of their scenarios.
Eight bank holding companies, State Street, BNY Mellon and
the six listed above, will be required to incorporate a
counterparty default scenario.
Banks are required to submit their capital plans and stress
test results to the Fed by April 5.
The Fed will announce the results before the end of