Finally, regulators are acknowledging the fact that their stress tests aren’t stressful enough. We’ve already passed the baseline scenario, and the pessimistic scenario of 10.4% unemployment isn’t even that pessimistic.
So, does this mean regulators are going to revisit their assumptions.
Nope, they’re too far along in the process to do that.
But according to FT, they are going to take the results more seriously. In other words, if a bank “fails” the stress test, then they really failed.
But we still don’t know what this means in practice. It’s not like the government is going to put any banks into receivership following the tests. At least we don’t think they will. And regulators always said that the endgame would be that failing firms would be forced to raise more capital. In fact, even when regulators were leaking the fact that all 19 banks were going to “pass”, they were saying that many would need more cash. So who knows what this means, really.
Still, kudos for acknowledging that things have changed. That’s not always an easy thing to do.