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Banks Got More Optimistic ‘Stress Test’ Results Than Fed  

January 9, 2014
Ben Leubsdorf, The Wall Street Journal

The bank “stress tests” mandated by the 2010 Dodd-Frank financial law spat out different results depending on whether they were conducted by the Federal Reserve or by the banks themselves. And the banks, collectively, were more optimistic about their balance sheets weathering an economic downturn.

That’s according to two economists from the New York Fed, in an analysis published Wednesday on the bank’s Liberty Street Economics blog.

The Dodd-Frank law requires the Fed to conduct annual stress tests of large banks. The Fed uses three economic scenarios for the tests, including a “severely adverse” scenario that assumes significant strain such as a new recession and rising unemployment. The 2010 law also requires the bank holding companies, or BHCs, to conduct their own stress tests using their own models and analysis.#

Read more: The Wall Street Journal


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