2019 Stress Test Scenario: Big Banks Must Show The Fed They Can Survive A Hypothetical Scenario With Enough Capital To Continue Lending
The Fed’s latest “severely adverse” scenario imagines unemployment rising by six percentage points to 10%, along with stress in corporate lending and commercial real-estate markets. “The hypothetical scenario features the largest unemployment rate change to date,” said Randal Quarles, the Fed’s vice chairman for supervision, in a written statement. “We are confident this scenario will effectively test the resiliency of the nation’s largest banks.”
Big banks must show the Fed they can survive the hypothetical scenario with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders. Test submissions are due in April and the results will be announced by the end of June, the Fed said.
The Fed also announced Tuesday it has completed steps to boost the transparency of the models it uses to evaluate banks in the stress-test scenarios, giving banks a better idea of their chances at passing or failing. Specifically, the Fed said it would publish information about how hypothetical loan portfolios would fare under the tests, based on its internal models.