FRB Releases Stress Testing Scenarios

The Board of Governors of the Federal Reserve System ("FRB") released stress testing scenarios for large bank holding companies and large U.S. operations of foreign firms (collectively, the "banks").

According to the FRB, eighteen of the largest and most complex banks will be reviewed on a qualitative and quantitative basis. For the first time, this group will include five foreign firms with U.S. operations. Twenty firms with less complex operations, including the U.S. operations of one foreign firm, will be subject only to the quantitative portion of the review.

The FRB stated that these tests are meant to evaluate a bank's ability to survive in times of economic stress. FRB explained that the tests are broken into three scenarios with varying degrees of stress: baseline, adverse and severely adverse. For example, the severely adverse scenario involves a global recession in which the unemployment rate rises to ten percent. All three scenarios incorporate 28