It seems that the Federal Reserve is criticizing the banks models for the stress test. Some of the concerns revolve around the assumption that the 20% drop in housing would be uniform across the country, and that the banks requested the ability to pay dividends. I really don’t understand that Fed’s comfort in dealing in this hypothetical world, and the thought that these projections are going to be even close to accurate is absurd. Obviously the banks want to pay a dividend which was one of the primary reasons for the stress test. The Fed needs to provide far more clarity to the model and they need to be more reasonable, such as telling the banks that failed the stress test what they would be allowed to do from a capital allocation perspective, as opposed to making them resubmit a whole new plan when conditions will already have changed.
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