Fed Gives Banks New Dire Scenarios for 2014 Stress Tests -- Bloomberg
Lenders including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) will have to show they can survive the demise of a trading partner or a plunge in value of high-risk business loans in the 2014 version of U.S. stress tests.
The scenarios for the annual tests, outlined by the Federal Reserve in a statement yesterday, reflect some of the most pressing threats seen by regulators as they gauge the ability of the U.S. financial system to withstand economic shocks. Bankers will have to show what would happen to the value of leveraged loans they hold, the impact of another housing bust and how they’d fare if a firm that owes them substantial sums collapses.
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My Comment: I love these disaster scenarios (NOT!) .... I lived through it in Russia in 1992 .... it is not a pretty sight. But by conducting these scenarios (and to this degree) one has to wonder if the Fed knows something that they are not telling us.
Update: The warning signs are there.
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