The Fed as expected pushed in some harsher conditions for the second edition of the stress test, while Ben Bernanke separately admonished bankers for being too cautious and reducing their lending activity confounding efforts to beat the slowdown,. The Fiscal cliff meanwhile on the CNBC network watch “Rise above” had AETNA CEO remind people about the 2 mln jobs that will be lost if we are allowed to go on to the cliff with a 1.7% GDP contraction in the first quarter itself. PPI contracted this week in yesterday’s data though Hurricane Sandy could not push down the Empire State Manufacturing survey, affecting Philly instead , thus rocking the boat for the recovery while Obama settles in for the second term and Boehner led Republicans chastised by a rare Tea Party loss in the ‘by elections’ still wondering if taxin gthe wealthy would bring down jobs instead too.
The Fed Stress tests require banks to assume a 12.1% unemployment rate by mid 2014 and recessions in UK, Japan and Europe while the scenario includes a 6.1% slump in GDP in the next quarter itself where the 2008 edition of the crisis itself saw a 8.9% contraction in a single quarter.
Interestingly the scenarios also stress on a period of slow growth in Asia during the entire period, affecting International business at Citi for example. The mid 2014 scenario includes a 20% drop in home prices and equities losing 50% of their value. The second edition of the stress tests though one has been held annually since 2009, will see banks moving on from the $820 B in Core Capital shocased in the 2011 March edition itself twice of the Capital in the system at the 30 largest banks in 2009
Regulators at the FDIC and the Office of the Comptroller of Currency will be using the same scenarios at the other 70 banks that have more than $10 B in customer assets to review their readiness for the same extreme scenarios in terms of the benchmark 5% Core Tier I Capital requirement of the law for all banks with $10 B or over in Customer assets
Meanwhile as Buffet mentioned elsewhere earlier in the afternoon, if 25 Republicans decide they’ll put country above party and sign up for something that makes sense we don’t need to go over the cliff. Buffet has also proposed a Buffet Tax on Wealthy Americans to a 15% minimum while tax payers in Manhattan worry at the low $250K limit of the definition of Wealthy Americans. The current Obama proposals require Revenues to 19% of GDP , increasing by 1% of GDP and Expenses cut down to 21%. S&P 500 is down 5% from the mid year high of 1450 with the DJ Index also trawling the depths of 12800.
China’s new conservative leadership under Xi Jinping is meanwhile also looking at changed roles and a smaller Polit buro though more collectively in charge after Hu Jintao’s stepping down means the last of the Leaders annointed by Deng Xiao Ping have gone. (See our China coverage here)
- Warren Buffett Explains Why He Isn’t Freaking Out About The Fiscal Cliff(businessinsider.com)
- Stock futures up on China data, fiscal cliff a worry(news.yahoo.com)
- What, Exactly, Is the Fiscal Cliff, You Ask?(ritholtz.com)
- What if everything goes wrong – fiscal cliff, hard landing in China, and multiple eurozone exits?(aei-ideas.org)
- Bernanke Says Fed Will Do What It Can to Support Housing(bloomberg.com)
- Fed Orders Largest Banks to Test Against Deep U.S. Recession(bloomberg.com)
- China and America’s Economic Challenge(thediplomat.com)