Federal Reserve May Add Bitcoin Crash to Stress Test Scenarios
Yogita Khatri's original article for www.coindesk.com reduced by 56%
The U.S. Federal Reserve could soon include a cryptocurrency market crash as one of the risks to take into account when conducting supervisory stress tests. The Fed's board of governors on Thursday announced amendments to a policy statement on the scenario design framework for stress testing, saying that "The collapse of the bitcoin market" may be considered as one of the "Salient" market risks.
The board said it aims to make supervisory stress tests "Sufficiently dynamic" by including salient market risks in the scenario design framework. "Where appropriate, the Board intends to continue augmenting the scenarios with risks it considers to be salient," it explained. Of eligible firms are conducted annually by the Board pursuant to the Dodd-Frank Wall Street Reform Act and the Board's stress test rules.
"Together, the Dodd-Frank Act supervisory stress tests are intended to provide company management and boards of directors, the public, and supervisors with forward-looking information to help gauge the potential effect of stressful conditions on the ability of these large banking organizations to absorb losses, while meeting obligations to creditors and other counterparties and continuing to lend." The board has developed three stress-test scenarios - "Baseline," "Adverse" and "Severely adverse" - and projects a firm's balance sheet, risk-weighted assets, net income, resulting post-stress capital levels and regulatory capital ratios, among other factors under each one.
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