Federal Reserve Plans Tougher Big-Bank Stress Tests This Year

By Ryan Tracy 

WASHINGTON -- The Federal Reserve said Thursday that its stress tests for big banks will imagine a more severe economic downturn in 2018 than in last year's version, as it announced the details of the hypothetical scenario banks must survive to pass the exams.

The Fed's latest "severely adverse" scenario imagines unemployment at 10%, severe stress in corporate and real-estate lending markets, and severely difficult economic conditions in developing Asian countries and Japan, the central bank said.

Big banks must show the Fed they can survive the hypothetical scenario with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders. Test submissions are due in April and will be announced by the end of June, the Fed said.

Several firms are taking the full version of test for the first time, the Fed said, including CIT Group Inc. and the U.S. units of Barclays PLC, Credit Suisse AG and UBS Group AG.

The Fed said the 2018 scenario "features a more severe downturn in the U.S. economy as compared to last year's scenario," reflecting the central bank's policy to include "elements that create a more severe test of the resilience of large firms when current economic conditions are especially strong."

Write to Ryan Tracy at [e-mail]

(END) Dow Jones Newswires

February 01, 2018 16:14 ET (21:14 GMT)

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