Banks Are Managing Their Stress
Also Fed bond-buying and stock-drop lawsuits.
Oops:
That is from the results of the bank stress tests that the U.S. Federal Reserve released on Thursday. The way the stress tests work is that every year the Fed prepares a “severely adverse scenario,” a hypothetical economic catastrophe that would make life difficult for the big banks, and then asks the banks to model how they’d do in that catastrophe.1 If they’d have enough capital even taking into account the catastrophe, then they have enough capital and that’s good; if the catastrophe would bring them below minimum capital requirements then that’s bad and they need to preserve or raise capital now. It is a good sensible way to make sure that, even in the good times, the banks are preparing for the bad times.