The FDIC last week released stress-testing data for 2018. These are economic scenarios that will be used by certain financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The data provides (3) different economic scenarios by which institutions can test the resilience of their portfolios and overall financial condition. These include (a) baseline, (b) adverse, and (c) severely adverse scenarios which are based on key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets. The data contains quarterly forecasts out to 2021.
The (a) scenario represents expectations of private sector economic forecasters which contain historic data and actual projections for the key variables. The (b) adverse and (c) severely adverse scenarios, however, are not forecasts; rather, they are hypothetical scenarios designed to assess the strength and resilience of financial institutions under stressed economic conditions.
The FDIC coordinates with the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency in developing and distributing these scenarios. The complete dataset can be accessed here.
The U.S. economy has been see-sawing back and forth for some time now, with indicators often sending mixed signals. The Federal Reserve Bank of New York’s February 2018 edition of U.S. Economy in A Snapshot continues to reflect some positive indicators for the economy. This includes factors that are critical to sustainable momentum, including business investment, increases in real estate activity and value, and increases in earnings and household net worth. Employment continues to grow, and GDP remains on a growth path.
With respect to financial markets, banks stocks are performing in line with the broader market and the dollar continues to depreciate against other currencies. The implied path of the Fed Funds rate has shifted upwards, and long-term U.S. Treasuries between January-February showed the largest increase in four years.
The full report can be accessed here: