Banks in the United States will have to test whether they can survive a halving of the stock market during a severe U.S. recession, the Federal Reserve said on Friday, as it set the rules for next year's model runs to gauge the health of the financial system.
Eight large U.S. banks must also test for the first time whether they can cope with the hypothetical default of their largest trading partner, the Fed said in documents laying out the so-called "stress tests."
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"The capital planning and stress testing program ... has contributed to a significant increase in capital at the largest banking organizations in the United States," the U.S. central bank said in a press release.
The stress tests were mandated by the Dodd-Frank law—aimed at preventing a repeat of the 2007-09 credit crisis - and measure how a bank's loan books and security portfolios hold up under a range of adverse economic scenarios.