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Passing the Test


Key questions regulators are asking to judge how "stressed" the banks are.

What if the recession drags on?

To find out, regulators will measure how a bank would fare in a two-year slump, using different scenarios for the depth and severity of the recession.

What's the effect of joblessness?

Rising unemployment could send loan losses soaring. The government's inspectors will plot the impact on a bank's loan portfolio if joblessness tops 10% next year.

How much capital do the banks have?

Banks argue they have plenty of Tier 1 capital—a mix of preferred shares, intangibles, and common stock. But regulators will look closely at how much consists of common shares, widely seen as higher-quality equity.

What's the liquidity risk?

The credit markets may freeze again, making it hard for banks to raise money. In the event of a new freeze, regulators will want to know how quickly a bank would run into cash problems.


The Aging of Abercrombie & Fitch
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