Yesterday, the Federal Reserve issued three hypothetical, supervisory scenarios that will be used in the 2014 capital planning and stress testing cycle. The OCC issued substantively identical scenarios.
The baseline, adverse, and severely adverse scenarios each include 28 variables (16 domestic variables and 12 international variables), including economic activity, unemployment, exchange rates, prices, incomes and interest rates. The 28 variables include all of the variables provided last year and two new domestic variables—the yield on the 5-year Treasury bond and the prime rate.
We have developed a set of visuals that illustrate the Federal Reserve’s 2014 scenarios, including a comparison with last year’s severely adverse scenario.