Live news , top stories, corporate news, company news, sector news, economy news, results analysis news, ceo interviews, fund manager interview, advisor interview, market news, bazaar talk, hot stocks news, ipo news, commodities news, mutual fund news, insurance news, news wire
25 December, 2014 22:36 IST
Fed`s 2013 stress testing scenarios less severe: CRISIL
Source: IRIS International | 20 Nov, 2012, 10.28AM
Comments  |  Post Comment

The US Federal Reserve's (Fed) 2013 stress testing scenarios for US banks announced on November 15, 2012 are likely to be less stringent for banks, especially for those with a greater US presence, concludes a study by CRISIL Global Research & Analytics (GR&A). The analysis compares the scenarios that the top 30 US-domiciled bank holding companies (banks) need to use for carrying out their 2013 stress tests submissions with the 2012 scenarios.

The impact on stress test outcomes in 2013 for individual banks will vary significantly. Sanjeev Sinha, president, CRISIL GR&A, said, “In general, US banks with a lower exposure to the Euro region and Asia are relatively better placed under CCAR-2013. Also, since the scenarios assume a sharp drop in housing and commercial real estate prices for the next 10 quarters, banks with a higher exposure to mortgage and securitized assets are likely to face more adverse outcomes.”

The Fed’s scenarios specify assumptions for a range of macroeconomic parameters in US and other regions. The Fed requires three scenarios under the Comprehensive Capital Analysis and Review (CCAR) 2013 ��" “supervisory baseline”, “supervisory adverse” and “supervisory severely adverse” compared to two under CCAR-2012. It has also provided greater transparency on the methods employed to generate the above scenarios. Of the three supervisory scenarios, CRISIL GR&A has analyzed the “supervisory severely adverse” scenario and compared to the “supervisory stress” scenario in CCAR-2012. Sinha said, “Our analysis contains a one-to-one comparison of the 13 quarter projections of each of the 26 CCAR macroeconomic parameters in CCAR-2013 and CCAR-2012”. For this comparison, CRISIL GR&A has used a key statistical measure “Spread Average” defined as the average difference in spreads for each variable over 13 quarters between CCAR-2013 and CCAR-2012.

For the US, the CCAR-2013 assumptions across all major macroeconomic parameters are more favorable. Explains Anshuman Prasad, director, Risk & Analytics, CRISIL GR&A, “Central to the assumptions for US is the Fed’s approach of using unemployment rate as the primary parameter in specifying stress scenarios. Lower unemployment rate projections in CCAR-2013 and their cascading effect on other parameters will likely have a positive impact on the stress testing outcomes.” There is a positive “spread average” in key asset price variables like House Price Index, Dow Jones Total Stock Market Index and the Commercial Real Estate Price Index in CCAR-2013 scenarios over CCAR-2012. Similarly, the 10-year Treasury yield and 30-year Mortgage rates assumed in CCAR-2013 are, for most quarters, below their corresponding CCAR-2012 equivalents leading to favorable stress outcomes for the banks. However, the BBB corporate bond yield values under CCAR-2013 are above their CCAR-2012 equivalents during the last 9 quarters of the analysis, suggesting higher risk in corporate exposures of banks.

Outside the US, however, for the 4 international regions - Euro area, Japan, UK and developing Asia, assumptions for macro-variables have become far more severe in CCAR-2013 including weaker real GDP growth and weaker Euro currency. The downturn assumed in developing Asia is more acute, underpinned by a sharply weakening Chinese economy.

Comments Post comment 
 Post Comment
Name Email
Comment
Security Code type    into this box
Related Articles
Reliance inks shipping deal with Mitsui - 25-Dec-2014 11:40
Tube Investments allots share - 24-Dec-2014 17:57
Tata Motors launches Prima world truck, in Nepal - 24-Dec-2014 16:54
Aditya Birla Nuvo allots shares under ESOS - 24-Dec-2014 16:14
Arrow Coated Products enters into supply agreement with Careli - 24-Dec-2014 15:58
Axis Bank allot equity shares under ESOP - 24-Dec-2014 15:49
ICICIdirect maintains 'Buy' on SBI - 24-Dec-2014 15:33
ACME to supply telecom passive infra to PGCIL - 24-Dec-2014 14:57
Ind-Ra affirms Tera Software at 'BBB-' - 24-Dec-2014 12:38
3i Infotech to sell Western Europe unit to Objectway - 24-Dec-2014 12:12
ICICIdirect recommends 'Buy' on Gujarat Pipavav - 24-Dec-2014 12:01
more...
Home  |   Shares  |   F&O  |   Mutual Funds  |   Loans  |   Insurance  |   News Centre
Wealth Tracker  |   Newsletters  |   Tax Corner  |   NRI Centre  |   Advertise
© All rights reserved. IRIS Business Services Limited
A Disclaimer