📉 2023 Stress Test Scenario is Out
On Feb 10, the Fed released this year’s stress testing scenario.
It is an annual exercise to gauge the largest US banks’ capabilities to handle a hypothetical severe recession.
This year’s stress scenario includes:
- A 12.5% GDP contraction in early 2023
- A 10% unemployment rate in Q3 2024
- 38% drop of residential housing prices
- 40% decrease of commercial real estate
It also includes an extra market shock - applied to the 8 banks with large trading operations. It is for study purposes only, not impacting capital requirements.
The 23 largest banks have time to prepare and submit their stress testing results in the 2nd quarter.
Even though some banks complained about the scenario design before, the regulator regards it as a useful tool to manage systemic risk.
Regardless of the business size, have you stress-tested your lending portfolio?
Sources: the Fed, Banking Dive.