Requirements put in to law after 2008 housing crisis

Crossville TN

Description

From the Federal Reserve website... TARP (Troubled Asset Relief Program). Bailout by the "taxpayers" to the banks in 2008. Supervisory Scenarios The severely adverse scenario describes a hypothetical set of conditions designed to assess the strength and resilience of banking organizations in an adverse economic environment. The baseline scenario follows a profile similar to average projections from a survey of economic forecasters. These scenarios are not Federal Reserve forecasts. (Sounds likely) 2022 Severely Adverse Scenario The 2022 global market shock component for the severely adverse scenario is characterized by a sharp curtailment in global economic activity, a tightening of financial conditions, and a worsening of existing supply-chain disruptions. An increase in term risk premia drives an increase in Treasury rates and a steepening of the yield curve. Benchmark bank lending rates rise sharply, reflecting tighter financial conditions. The drop in economic activity and additional supply-chain disruptions lead to lower corporate profits, resulting in substantial public equity price declines and increases in public equity volatility across global markets. The U.S. dollar appreciates against the currencies of emerging market economies due to substantial flight-to-safety flows and appreciates more modestly against the currencies of most developed economies, while the yen appreciates against the U.S. dollar due to the unwinding of positions. The strains on supply chains more than offset the impact of weaker economic activity and lead to price increases across commodities. Higher longer-term Treasury rates drive up mortgage rates; valuations of assets related to residential and commercial real estate fall sharply in line with the decline in economic activity. Private equity asset values experience sizable declines, particularly holdings related to real estate. The combination of a weakened economic environment, further supply-chain disruptions, high levels of debt, and mutual fund redemptions leads to widespread bankruptcies and drives asset sales. As a result, corporate bond spreads widen sharply and leveraged loans experience large price declines. Non-investment-grade debt, which experiences especially high default rates and record low recovery rates, sees a particularly large widening of spreads. For U.S. state and local governments, revenue declines due to the slowdown in economic activity are combined with significant spending increases and lead to a widening in municipal bond spreads and increased risk of defaults. Mutual funds holding municipal debt face redemptions and outflows that exceed historical experience. Asset prices drop sharply in the severely adverse scenario. Equity prices fall 55 percent from the fourth quarter of 2021 through the fourth quarter of 2022, accompanied by a rise in the VIX, which reaches a peak value of 75 in the second quarter of 2022. House prices and commercial real estate prices also experience large declines. At their trough at the end of 2023, house prices are 28-1/2 percent below their level at the end of 2021. Commercial real estate prices experience larger declines, reaching a level in the fourth quarter of 2023 that is nearly 40 percent below the level at the end of 2021. The developments in foreign economies reflect greater stress in emerging market economies, partly driven by building "risks in the Chinese economy" (Evergrande on the verge of collapse). This is a hypothetical scenario designed to assess the strength and resilience of banking organizations and does not represent a forecast of the Federal Reserve. Bingo!