Those banking stress tests... maybe not so stressful

[Kurt_and_Hunter]

The stress test was described as analyzing how a bank would perform in real down-side scenarios: depression-like conditions that have been described as highly unlikely to materialize.

But the first look at the stresses involved strikes me as not all that stressful. In fact, some of the dire and "unlikely" hypothetical stress scenarios seem almost reassuring. For instance, the stress-test unemployment levels are 2009=8.9% and 2010=10.3%.

And the "stressful" 2010 GDP is 0.5%. Geez, I'd think 2010 GDP growth of 0.0% is not exactly a freakish scenario.

Upshot: If a bank can't handle these far-from-disaster scenarios then they really are in trouble! So let's not hear any crying from them about Geithner being unfair. (I don't know if this info being released caused the rally in financial stocks this afternoon. I think folks were fearing a much tougher test.)



http://www.calculatedriskblog.com/2009/02/stress-test-economic-scenarios.html