RT Journal Article
SR Electronic
T1 Are the Federal Reserve’s Stress Test Results Predictable?
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 82
OP 97
DO 10.3905/jai.2016.18.4.082
VO 18
IS 4
A1 Glasserman, Paul
A1 Tangirala, Gowtham
YR 2016
UL http://jai.pm-research.com/content/18/4/82.abstract
AB Regulatory stress tests have become a key tool for setting bank capital levels. Publicly disclosed results for four rounds of stress tests suggest that as the stress testing process has evolved, its outcomes have become more predictable and therefore arguably less informative. In particular, projected stress losses in the 2013 and 2014 stress tests are nearly perfectly correlated for bank holding companies that participated in both rounds. The authors also compare projected losses across different scenarios used in the 2014 stress test and find surprisingly high correlations for outcomes grouped by bank or by loan category. Similar patterns apply to the 2015 results. The authors discuss the potential implications of these patterns for the further development and application of stress testing.