The Bankwatch

Tracking the consumer evolution of financial services

Fed releases methodology for bank stress tests

As part of its trickle information  approach the Fed released their methodology for Bank stress tests.  Another acronym SCAP (Supervisory Capital Assessment Program).

General Description of the Exercise:

The BHCs were asked to estimate their potential losses on loans, securities, and trading positions, as well as pre‐provision net revenue (PPNR) and the resources available from the allowance for loan and lease losses (ALLL) under two alternative macroeconomic scenarios. Each participating firm was instructed to project potential losses on its loan, investment, and trading securities portfolios, including off‐balance sheet commitments and contingent liabilities and exposures over the two‐year horizon beginning with year‐end 2008 financial statement data. Firms were provided with a common set of indicative loss rate ranges for specific loan categories under conditions of the baseline and the more adverse economic scenarios. Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate. In addition, firms with trading assets of $100 billion or more were asked to estimate potential trading‐related market and counter‐party credit losses under a market stress scenario provided by the supervisors, based on market shocks that occurred in the second half of 2008.

What really matters is the result, and the impact on the 19 Banks involved, a list that is quite closely guarded.

This from FT:

These 19 firms collectively hold two-thirds of the assets and more than one‐half of the loans in the U.S. banking system, and support a very significant portion of the credit intermediation done by the banking sector.

Here it the full document:

Written by Colin Henderson

April 24, 2009 at 17:11

Posted in Uncategorized

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