See You in the Secondary Market
We here assess the stress-test scenarios released yesterday by the Federal Reserve to assess their strategic impact on large-bank strategic planning. For all the talk of regulatory relief, this year’s CCAR round is tougher, now comprising an expressly counter-cyclical standard intended by the Fed to correct or even over-correct for current, benign conditions. The binding scenario – severely-averse conditions – also slightly tightens house-price depreciation and moves it up in the nine-quarter test cycle, making the tests particularly punitive for low-risk portfolio lending. Over to you, GSEs and Ginnie.