STAFF NEWS & ANALYSIS
The Real Reason Fed Stress Tests Aren’t Credible
By Daily Bell Staff – June 23, 2016
Why the Fed’s Stress Tests Aren’t Credible … For the sixth year in a row, the U.S. Federal Reserve is conducting stress tests to see whether the country’s largest banks can withstand a severe crisis. If only the results, to be announced this week and next, were more useful. -Bloomberg
Federal Reserve stress tests for banks are a fantasy.
They don’t address contagion, for one thing. Contagion makes everything much worse.
The Fed is now going to upgrade its stress test analysis.
More advanced network analysis, such as that used by the Bank of Canada, can do a better job of addressing contagion effects. And to its credit, the Fed plans to increase the amount of capital required for the largest banks to pass