The U.S. Federal Reserve said on Thursday it would assume wider corporate bond spreads and a higher oil price in the most strenuous scenario it will use in next year’s run of its annual check of banks’ health.
Overall, however, the Fed said its “severely adverse” scenario was largely similar to the one it had used in its 2014 run of the so-called stress tests, mandatory for any bank with assets of more than $50 billion.
The tests were introduced after the 2007-09 financial crisis, and are an increasingly important part of the Fed’s toolkit to make sure the largest banks stay safe, and to avoid a repeat of costly taxpayer bailouts.
The Fed can bar a bank from raising shareholder payouts such as dividends or share buybacks if it fails to show it can survive the three increasingly dire hypothetical economic scenarios used in the stress tests.
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