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which means the tests are not stressing. That is a good thing as they test for conditions that previously resulted in crashes. But it could also be a bad thing
by Jon_Lowtek 4y ago
which means the tests are not stressing. That is a good thing as they test for conditions that previously resulted in crashes. But it could also be a bad thing if the banks adapted to formally pass tests while straining their business with schemes that are overlooked
- bobthepanda 4y agoWe do know, at least from the last crisis, that so far the US stress tests have been effective at accurately gauging bank strength. (This is in contrast to the ECB stress tests during the Euro crisis, where repeatedly banks that had passed a stress test ended up needing bailouts or falling over.)
- e63f67dd-065b 4y agoThe conclusion during COVID was that the stress tests were too stringent and COVID was much better for the banks than worst case stress tests. Basically stress tests simulate large drops in asset values, but during COVID the trading desks made bucketloads of money when volatility was high. The financial sector is pretty resilient these days, the risky stuff mostly moved off bank balance sheets into private funds not subject to the same regulatory requirements.