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Fed’s Bank Tests Overlooked Risk of Rapid Rise in Interest Rates

  • Annual shock scenarios only tested short-term rate hikes twice
  • Fed added exploratory interest-rate risk study to 2023 review
The Marriner S. Eccles Federal Reserve building in Washington, DC.

The Marriner S. Eccles Federal Reserve building in Washington, DC.

Photographer: Al Drago/Bloomberg

The Federal Reserve’s cornerstone method for determining whether US banks can survive an economic crisis has for years had a glaring oversight: Regulators haven’t tested a scenario that resembles the economy of 2023, and the financial conditions that precipitated the downfall of Silicon Valley Bank, in nearly a decade.

Fed officials have touted the annual stress tests as their marquee supervision method to evaluate the health and resilience of the country’s biggest banks.