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COVID-19 stress test tool

Run your own stress test on banks

There is enormous uncertainty about the path of the economy and the resulting losses in the banking sector because there remains enormous uncertainty about the spread of COVID-19. As banks fall closer to or even below their minimum capital requirements, there is concern they may not be able or willing to support lending in the economy, which could amplify the downturn.

Many central banks run stress tests on their banking systems to assess how they will fare in stressed economic scenarios. The economic shock of COVID-19 on the U.S. economy is already far more severe than the most severe stressed scenario the Federal Reserve considered in its 2019 stress test. Given the much higher-than-normal uncertainty about the economic outlook, we produced this tool to allow the public to run their own stress tests on the largest banks in America. You can vary the assumptions you would like to use to see the effects on the capital positions of the largest banks. In short, the public will now have the transparency they need into the health of the largest banks to judge their condition.

This webpage uses the Minneapolis version of the publicly available stress test model developed by the Federal Reserve Bank of New York (the “CLASS” model) along with publicly available data on the banking system. This model was used to generate results in the Financial Times editorial on May 12, 2020. We will continue to improve our stress test and welcome your feedback.

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0 firms with projected capital below their individual thresholds

  DFAST scenarios COVID-19 recessions
  Baseline Severely adverse U-shaped Severe
U-shaped
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Real GDP growth
Unemployment
3m T-bill yield
10yr T-note yield
BBB bond yield
CRE price index
House price index
Stock market

Macroeconomic Variables

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Resources

Read Frequently Asked Questions about the Minneapolis Stress Test Model

This zip file includes the computer code and data files used in the Minneapolis Stress Test Model.

Notes

  1. The chart above is an extension of the article on stress testing for large banks in the COVID-19 pandemic published on May 12, 2020. This web page allows users to select different paths for the eight macroeconomic variables used in the Minneapolis version of the CLASS model and then see the resulting projection of capital for the 21 domestic banks that were part of the 2020 DFAST exercise.
  2. The scenarios shown here are not forecasts but are instead hypothetical scenarios. The scenarios were constructed to help illustrate how large banks could react to the adverse economic conditions resulting from the COVID-19 pandemic.
  3. The default version of the chart shows the projection of capital under the “baseline” scenario from the 2020 DFAST exercise in which the economy continues to expand at a normal place. Capital for the 21 banks, under these normal economic conditions, would be projected to grow nearly $12 billion a quarter and end at roughly $1,154 billion by the first quarter of 2022.
  4. The capital projections in the stress scenarios include the performance of banks under the negative economic conditions along with additional losses resulting from operational risk, counterparty default, and the global market shock to large bank trading portfolios (based on the recently released official results from the 2020 exercise).
  5. The dashed red line in the chart labeled “capital threshold” is the aggregate amount of capital required by the 21 domestic banks to meet the 4.5 percent statutory minimum of risk-weighted assets and the applicable GSIB surcharges for the eight systemically important firms. This amount was roughly $527 billion as of the fourth quarter of 2019, or 5.8 percent of the starting amount of risk-weighted assets.
  6. The Minneapolis version of the CLASS model currently assumes that the individual firms hold a constant balance sheet over the projection period. As such, total assets, liabilities, and risk-weighted assets remain fixed at their starting levels over the nine projection quarters. In addition, it also assumes that dividends are held constant over the projection horizon at the fourth quarter of 2019 level and share buybacks are eliminated during the projection period.