In the worst economic conditions, the 23 largest US banks together would lose more than 500 billion euros, but they would survive. This is reflected annually Stress test The Federal Reserve is a system of central banks in the United States.
In the experiment, banks are tested for conditions in a recession, in which investments in commercial real estate nearly halve in value, home prices fall 38 percent and unemployment rises to 10 percent.
The stress test results come months after the bankruptcy of three mid-sized US banks, including Silicon Valley Bank (SVB). He had very little capital due to rising interest and failed to collect new money.
According to the Financial Times, SVB will participate in a stress test next year and the bank may have passed it, the newspaper writes. This is because this test does not take into account rising interest rates, but instead calculates with a hypothetical interest rate close to zero.
A different test scenario
So the Federal Reserve cautions that the current measure is “only one way to measure” and that banks “need to be humble about how they risk.”
This year, the central bank also added a new, smaller test scenario, says Rabobank economist Philip Marie. “There is less recession, higher inflation lasts longer and interest rates are higher.” According to Mary, testing under such adjusted conditions is a good idea: “That’s what caused those three banks to collapse in March. Fortunately, the big banks also come out reasonably well in this test, but what about the smaller banks? We don’t know anything about that.”
According to a Rabobank economist, the central bank learned lessons from last March’s situation with the new test. “But they should have done it sooner.” Better to bring small sofas too. “These 23 banks are only responsible for 20 percent of commercial real estate, so the rest is with smaller banks.”
For banks, passing the test is important because they can reward shareholders without central bank controls.
Since the 2008 financial crisis, stress testing has been an annual requirement, but President Trump has loosened the rules, Mary says: “Before, the Federal Reserve censored banks’ capital from $50 billion. Trump raised it to $250 billion. Below that threshold, for example, was SVB. .”
Of the 23 banks tested, Deutsche Bank’s US unit would lose the most capital in a recession, followed by UBS America. Earlier this year, the Swiss bank’s headquarters took over Credit Suisse, the only European bank in trouble. Incidentally, this is not due to the same reasons as American banks.
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