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Federal Reserve’s Stress Test Criticizes Some U.S. Banks for Flawed Risk Models

The Federal Reserve has criticized the way some of the 19 largest U.S. banks have calculated potential losses and planned dividends in this year’s stress tests. The critical assessment will be part of feedback letters that are to be sent to lenders this week. The letters appear as tensions rise between lenders and the Fed over the need of new rules to make the financial system safer.

Three insiders reveal that the flaws included bringing down housing prices at the same rate, rather than matching them to specific regions, and planning dividends most likely to drain needed capital. Daniel Tarullo, Federal Reserve Governor, informs that the uniform 20 percent decline in national housing prices will actually lead to overall losses.

News Characteristics

Date : May 01, 2012
Region : North America
Industry : Banking

Financial Firm

Company Name: Federal Reserve