US Banking system - What the Stress Tests Didn't Tell Us - by Christian Menegatti
U.S. authorities have just released the results of the stress tests that they ran on the top 19 U.S. banks. This group holds about two-thirds of the total assets in the U.S. banking system. The health of those balance sheets has profound implications for the severity and length of this global synchronized recession.Don't be comforted by the results. That's because two different scenarios are used to stress test the balance sheets of financial institutions: baseline and adverse scenario. The baseline was designed to represent the consensus at the time in which the plan was presented. Unfortunately, current macroeconomic conditions are already worse than the adverse scenario (which is closer to the new consensus) for all the three variables of the test —unemployment, real GDP and home prices.
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