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MNI BRIEF: Fed Eyes Commercial Real Estate In '22 Stress Tests

(MNI)

The U.S. Federal Reserve unveiled the hypothetical recession it plans to test large banks against in its 2022 stress tests, which includes a "sharp decline" in economic activity including a 40% drop in commercial real estate prices.

The scenarios, published Thursday, envision a severe global recession where U.S. unemployment jumps 5.75ppts to a peak of 10% over two years. The large increase in the unemployment rate is accompanied by a 40% decline in commercial real estate prices, widening corporate bond spreads, and a collapse in asset prices, including increased market volatility.

In addition to the hypothetical scenario, banks with large trading operations will be tested against a global market shock component that primarily stresses their trading positions. Banks with substantial trading or custodial operations will be tested against the default of their largest counterparty. Twelve of the nation’s largest banks will be subject to this year’s test, with results published sometime at the end of the second quarter.

MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com

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