Fed Describes 'Stress Tests'

By Nick McMaster,  Newser Staff
Posted Apr 24, 2009 4:06 PM CDT
Two security officers walk outside the gate to the Federal Reserve Bank of Minneapolis as an employee, background, takes a break with a book in the interior courtyard Friday, April 24, 2009 in Minneapolis.   (AP Photo/Jim Mone)
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(Newser) – At the behest of the Federal Reserve, the 19 biggest US banks are projecting their losses on 12 categories of financial product such as loans and mortgage securities, the New York Times reports. The Fed, which asked the institutions to project a hypothetical scenario of a “stressed economic environment,” made outlines of its criteria public today.

The report withholds some details on how the test values losses in various financial products or protections against them. It focuses on the amount of capital held in common stock. "Losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks," the Fed said in a statement. Troubled major banks may be required to raise new capital to meet pending common-stock requirements.