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Fed to Include High Unemployment in 2019 Stress Test Scenario - ABI

The Federal Reserve said yesterday that its stress test for big banks will imagine a rapid increase in unemployment, as it announced the details of the hypothetical scenario that banks must survive to pass the latest round of the exams, the Wall Street Journal reported. The Fed’s latest “severely adverse” scenario imagines unemployment rising by six percentage points to 10 percent, along with stress in corporate lending and commercial real-estate markets. “The hypothetical scenario features the largest unemployment rate change to date,” said Randal Quarles, the Fed’s vice chairman for supervision, in a written statement. “We are confident this scenario will effectively test the resiliency of the nation’s largest banks.” Big banks must show the Fed they can survive the hypothetical scenario with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders. Test submissions are due in April and the results will be announced by the end of June, the Fed said.

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