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Even More on Stress Tests

By Anonymous

Earlier I pointed out that some of the numbers seemed puzzling.

Peter Eavis at the WSJ has a similar reaction, but uses a different example: U.S. Banks' Not-So-Stressful Test

The government's 13.8% worst-case loss-rate for second-lien mortgages seems fair. But it is a stretch to think Wells Fargo, with its large home-equity book focused on stressed housing markets, will have a lower-than-sector loss rate of 13.2%.

That doesn't make sense.

And on commercial real estate:

The government may have been too optimistic in positing an 8.5% commercial-real-estate loss rate. This sector is just starting to fall apart, and defaults may move sharply higher as borrowers struggle to refinance loans.

Unfortunately the Fed grouped Construction & Development loans (C&D) in with other CRE loans. The losses on C&D at loans are rising sharply, and it would have been easier to analyze if the Fed had released the data by each separate CRE category.

Full post as published by Calculated Risk on May 08, 2009 (boomark / email).