Fed Reveals Details of First Mid-Cycle Stress Test

The Federal Reserve Board has announced[1] the details[2] of its first-ever mid-cycle stress test. Following the release[3] of its regularly scheduled annual stress test results[4] in June, the Fed committed to develop a mid-cycle stress test by September 30[5] given the ongoing uncertainty of the coronavirus pandemic. 

The stress test results released in June found that all large banks were “sufficiently capitalized.” However, that stress test was based on banks’ year-end 2019 balance sheets and thus did not take into account the historic economic volatility experienced in the spring of 2020 associated with the coronavirus pandemic. Indeed, by the June release date, several economic variables had already moved more adversely than the Fed had anticipated in its most extreme stress test scenario. 

On September 17, the Fed released the details of its newly developed adverse macroeconomic scenarios designed to re-test 34 large banks’ resilience against downside pandemic scenarios.

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