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Federal Reserve Stress Testing Banks for Markets Crashing and Global Economic Doom


They've been running tests (trial runs to ensure their manipulation of the markets will work as intended) since 2008 or so. They don't repeatedly drill for scenarios that they do not intend to encounter.

Their intent is NOT to prevent a repeat of the 2008 crisis, as they are the ones who orchestrated the 2008 "crisis" (hostile takeover).

Fed to Stress-Test Banks for Dire Stock, Housing Scenarios
The Federal Reserve said it will scrutinize how 31 large U.S. banks, including JPMorgan Chase & Co. and Citigroup Inc., would respond to a plunge in equity and housing prices and a sharp downturn in the global economy.

The annual tests, using hypothetical scenarios that are not forecasts, are the cornerstone of the Fed's efforts to prevent a repeat of the 2008 financial crisis and to gauge the ability of banks to withstand economic turmoil. The Fed uses the exams to prod lenders into building up capital buffers. Firms that fail may have to forgo stock buybacks and higher dividends. The "adverse" scenario outlined by the Fed differs from last year's in that it features a higher, flatter yield curve for Treasuries — much like the one released two years ago, according to the Fed. The scenario assumes a hypothetical weakening in global economic activity while domestic inflation kicks up a rapid increase in Treasury rates.
In the Fed's "severely adverse" scenario, stocks fall by 60 percent by the fourth quarter of 2015 and housing prices drop by about 25 percent. Unemployment peaks at 10 percent, gross domestic product declines by 4.5 percent and the price of oil rises to $110 per barrel. Long-term Treasury yields fall to 1 percent. Jaret Seiberg, an analyst at Guggenheim Securities LLC, wrote in a research note today about the scenarios that they will "limit the ability of banks to get aggressive in returning capital to shareholders." All 31 banks must submit their capital plans to the Fed by Jan. 5. Under the adverse scenario, a rate rise would further risk banks' funding costs, and commercial deposits would migrate into institutional money funds.  The banks have to account for a mild, three-quarter U.S. recession starting in the last quarter of 2014, with real gross domestic product falling half a percent and unemployment of more than 7 percent and reaching 8 percent by the end of 2016, the Fed said in the report.  
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