By Erik Wasson
The Federal Reserve on Tuesday outlined a new round of stress tests to gage the ability of the U.S. banking system to withstand deep recessions and global shocks.
The Fed will be testing the nation’s 31 largest banks and is thereby implementing provisions of the Dodd-Frank financial reform law.
Banks have until Jan. 9 to provide capital plans to the Fed; if they fail the stress tests, the Fed has the power to restrict their banking activities.
Nineteen of the banks already participated in a review this year and 12 more will join in January. The stress tests will be based on “deep recessions” such as that which took place from 2007 to 2009.
The six largest banks will be subjected to the global shock tests “based on market price movements seen during the second half of 2008 … with adjustments made to incorporate potential sharp market price movements in European sovereign and financial sectors.”
The results of the tests will be released publicly, the Fed said.