As part of its trickle information  approach the Fed released their methodology for Bank stress tests.  Another acronym SCAP (Supervisory Capital Assessment Program). General Description of the Exercise: The BHCs were asked to estimate their potential losses on loans, securities, and trading positions, as well as pre‐provision net revenue (PPNR) and the resources available from the allowance for loan and lease losses (ALLL) under two alternative macroeconomic scenarios. Each participating firm was instructed to project potential losses on its loan, investment, and trading securities portfolios, including off‐balance sheet commitments and contingent liabilities and exposures over the two‐year horizon beginning with … Continue reading Fed releases methodology for bank stress tests

Chairman Ben S. Bernanke speaking at the Federal Reserve System’s Sixth Biennial Community Affairs Research Conference, Washington, D.C.  His topic is innovation and the risks to consumers from that innovation. First the sources of innovation. Financial Innovation and Consumer Protection | Bernanke Sources of Financial Innovation Where does financial innovation come from? In the United States in recent decades, three particularly important sources of innovation have been financial deregulation, public policies toward credit markets, and broader technological change. I am interested in the third group in particular – technological change. On the technological front, advances in information technology made possible … Continue reading Financial Innovation and Consumer Protection | Bernanke has the wrong culprit

The effect of low interest rates, low home prices, and elimination of ‘irrational’ lenders has paved the way for Wells, and likely the other recognised bank names to gather large amounts of new mortgage business in the US. I would estimate that banks are not taking undue risks and have tightened credit policies, however this is precisely the moment for regulators to perform that double check as part of their stress testing, both to ensure no re-occurrence of 2007/8, and to assure the public that this is based on solid growth. Incidentally that stress test result was due early in … Continue reading Wells Fargo mortgage business leaps ahead