Fed sets new stress tests for US banks

  @CRrileyCNN November 16, 2012: 3:33 AM ET
fed stress test

The Fed has released detailed scenarios for upcoming bank stress tests.

HONG KONG (CNNMoney)

The Federal Reserve, preparing to embark on its latest round of so-called stress tests, released the details Friday of three economic scenarios it will use to judge the health of the U.S.'s largest lenders.

The scenarios range from mild to calamitous, with the most extreme including a 5% decline in gross domestic product, an unemployment rate of 12% and a volatile stock market which loses half its value.

In the Fed's worst-case hypothetical, the damage extends internationally. The eurozone plunges into recession, and a sharp slowdown in China spills into neighboring countries.

The stress tests are mandated by Dodd-Frank, the financial reform law written in the wake of the 2008 financial crisis that brought down Bear Stearns and Lehman Brothers. The tests take place on an annual basis, and are designed to ensure banks are properly capitalized.

The 2012 scenarios are similar to the cases that provided a basis for the Fed's 2011 stress tests, although this year's model contains a more damaging recession in Asia.

Last year, the Fed's tests showed a majority of the nation's largest banks would be able to weather another deep recession.

But three banks -- Ally Financial, Citigroup (C, Fortune 500) and SunTrust (STI, Fortune 500) -- would likely need new capital from either investors or the government in the Fed's adverse economic scenario. A fourth financial firm, insurer Metlife (MET, Fortune 500), would likely be in need of assistance as well. To top of page



Join the Conversation
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.41%4.44%
15 yr fixed3.33%3.31%
5/1 ARM3.34%3.55%
30 yr refi4.39%4.41%
15 yr refi3.31%3.30%
View rates in your area
 
Find personalized rates:
Rate data provided
by Bankrate.com
CNNMoney Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.