Fed announces scenarios that will be harnessed for bank stress tests

On Nov. 1, the Federal Reserve released the scenarios that will be harnessed to stress test banks.

Daniel Tarullo, who is a Fed governor, noted the key role that these assessments could play.

"The capital planning and stress testing program has been an integral component of the Federal Reserve's broader supervisory and regulatory efforts to make the financial system stronger and safer since the financial crisis," he said in a statement.

The nation's central bank announced last month that it was providing lending institutions in the country with an interpretation of the Basel III capital requirements that contained more stringent liquidity rules. These guidelines have been designed to provide banks with the capital that they would need to survive certain economic shocks.

On Nov. 1, the Fed provided greater detail on what these situations might look like, as the financial institution revealed that it will create scenarios using a wide range of different variables including prices, unemployment and interest rates.

In total, 28 distinct factors were noted as being on the docket for use in these assessments. By evaluating banks, the Fed is seeking to make sure that they are prepared for different risks and can handle adverse events.

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