Stress testing on the farm

摘要

THERE'S A DOWNSIDE to buzzwords. If they don't ring a bell or relate to something in your own life, then it's usually something you can safely sweep under the carpet.Stress testing of the banks was all the rage in 2011 -12. Farmers, if they even gave it a passing thought, just assumed these were some fancy regulatory hoops which troubled European and US banks had to jump through. And they'd be absolutely right.Bank regulators dreamed up some seriously negative economic scenarios. Each bank had to prove that it could overcome the hypothetical problems, survive in business and, most importantly for them, continue to actively lend to households and businesses. Anadverse set-up used in 2012 for US banks envisioned unemployment at 13%, a 50% drop in equity prices, and a 21 % decline in housing prices. That's a doomsday scenario which would be a monumental challenge for any bank. The real question, though, was whether the situation would deliver a fatal blow and sink the financial institution.