The Fed's report on recent stress test of the
largest bank holding companies is online;
March 11, 2013 – The Federal Reserve reported that the nation’s 18 largest bank holding companies did better on their Dodd-Frank stress tests this year than last but would, under the dire conditions tested for, see losses of about $462 billion over a nine-month period.
The stress scenario used includes a peak unemployment rate of 12.1 percent, a drop in equity prices of more than 50 percent, a decline in housing prices of more than 20 percent and a sharp market shock for the largest trading firms. The test showed the firms’ tier 1 common capital ratio, comparing high-quality capital to risk-weighted assets, falling from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014, hypothetically.
Even so, the banks’ decline in tier 1 common capital under this testing scenario left them better off than they were at the end of 2008, when the ratio fell to 5.6 percent, the Fed reported.
The Fed says its stress scenario estimates are the result of “deliberately stringent and conservative assessments” under hypothetical, adverse economic conditions. The results are not forecasts or expected outcomes, it said. Full details are available in the report online.