Bank Stress Tests
Large U.S. banks are currently undergoing the so-called “stress tests,” and banks such as Citigroup and and Bank of America are already facing some problems. Stories will continue to pour into the news over the next couple weeks, so what you need to know first is what makes up the stress tests.
These stress tests are performed by federal bank regulatory agencies and involve hypothetical testing of a bank’s balance sheet and capital requirements in two scenarios: a normal economic projection (baseline) and a more adverse scenario. In any situation where a bank might not seem to have the capital requirements to sustain further adverse conditions, the bank will be required to raise additional capital.
The links below give plenty of details on how the tests are performed, how the banks are expected to raise capital, etc.
Read on:
WSJ.com – Bank Stress Test FAQ
CBS News – What Does a Bank “Stress Test” Entail?
WSJ.com – Fed Pushes Citi, BofA to Increase Capital
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