The FDIC released on Tuesday the economic scenarios that will be used by financial institutions with $10 billion or more in assets for Dodd-Frank-mandated stress testing in 2014.
The scenarios—baseline, adverse and severely adverse—include variables that reflect economic activity, including exchange rates, incomes, prices, interest rates and unemployment.
In the adverse scenario, a recession causes unemployment to rise to 9.25 percent, with the yield on the U.S. 10-year Treasury note jumping to 5.75 percent by the end of the year. Corporate bond and mortgage rates also increase, Bloomberg reports.
In the severely adverse scenario, unemployment rises to 11.25 percent and housing prices decline by 25 percent. The eurozone sinks into a recession, and developing economies in Asia would experience a sharp financial downturn.
Six of America’s largest banks, including JPMorgan Chase and Goldman Sachs, will be required to test their resilience amid a 29.4 percent decline in U.S. stocks and a 40.5 percent decline in equities in Asia’s emerging markets, according to Bloomberg.
Financial institutions will have until the first week of January to submit their capital plans, the results of which will be released in March.
The FDIC coordinated with the Federal Reserve and OCC in developing and distributing the scenarios.