Tuesday, February 2, 2016

The Fed Wants to Test How Banks Would Handle Negative Interest Rates

In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period, reports Bloomberg.

"The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.

In the simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.

"This scenario does not represent a forecast of the Federal Reserve," the central bank said. 

 -RW

2 comments:

  1. On days the market continues bumping hard downward, the Fed stress tests, prepares for (but doesn't, ahem, forecast) negative rates, recession, collapse, etc.. On days when the market dead cat bounces its "3 to 5 rate hikes this year." Something doesn't add up.

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  2. Of course no need to test negative rates, right Wenzel? Not when we...err you predict galloping inflation and boom this year. They should be testing for 5% fed funds rate to slow down this economy.

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