What would happen if an asteroid hit U.S. banks?
By Stella Dawson
Ever wondered what the U.S. economy might look like should there be another Lehman Brothers-style bank collapse? Well, it would not be pretty. Unemployment could jump to 13 percent, recalling the breadlines of the 1930s. The Dow Jones industrials might plunge 50 percent to 5,668, a level last reached before the dot.com boom in the mid-1990s. At the depths of a brutal year-long recession, output might shrink at an 8 percent annualized rate, wiping out two whole years worth of growth. Anyone lucky enough to have a job or cash left after the carnage could snap up a home at November 2000 prices. This dire picture is what the Federal Reserve wants U.S. banks to imagine when they test their balance sheets for resiliency against a major economic shock. So tough is the test that Karen Petrou, managing partner of Federal Financial Analytics, quipped: “The only adverse event the Fed left out is a direct asteroid strike on a major banking center.”