The US Federal Reserve, Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and Office of Thrift Supervision are using the Stress Test to determine whether the top 19 banks have enough capital to cover the loan losses for another two years of period if the market situation further deteriorate like economy contracts, severe unemployment and housing prices persists.
After the regulators review, in another one month down the line banks can review the results and bring more information to the discussion. The base line assumption for the stress test depends on forecasts like economic contraction of 2%, 8.4% jobless rate in 2009, followed by 2.15% growth and 8.8% unemployment in 2010. The authorities will also test the more adverse scenario like 3.3% contraction in 2009, accompanied by 8.9% unemployment followed by 0.5% growth and 10.3% jobless rate in 2010.
After the regulators review, in another one month down the line banks can review the results and bring more information to the discussion. The base line assumption for the stress test depends on forecasts like economic contraction of 2%, 8.4% jobless rate in 2009, followed by 2.15% growth and 8.8% unemployment in 2010. The authorities will also test the more adverse scenario like 3.3% contraction in 2009, accompanied by 8.9% unemployment followed by 0.5% growth and 10.3% jobless rate in 2010.
STRESS TEST EXPECTATION
On May 7 the authorities will publish the outcome of the stress test after the market hours, but the forecasts are already made public by various experts on this. According to Bloomberg reports, about 10 banks out of 19 banks need additional capital to cope with the ‘Financial Tsunami’. Banks May come with various proposals including conversion of preferred shares.
