How much do these things overestimate usually?

lostinrates

Presumably, a worst case scenario suggests it is an overegged omlette of a figure they use to stress test...so how much do FSA and similar bods generally over estimate the figures by? is there an average?


http://uk.reuters.com/article/businessNews/idUKTRE54R1SX20090528

LONDON (Reuters) - The country's financial regulator said the tests it uses to gauge banks' capital strength assume house prices will halve and GDP shrink 6 percent in the current recession, making it the country's worst for more than 60 years.

Disclosing details of the 'stress tests' for the first time, the Financial Services Authority said they also assume unemployment peaking at 12 percent and no growth in the economy until 2011.

"The current stress scenario models a recession more severe and more prolonged than those which the UK suffered in the 1980s and 1990s and therefore more severe than any since the Second World War," the FSA said in a statement on Thursday.

The FSA said it would not disclose the results of individual banking stress tests.

sabretoothtigger

The USA test was conservative by testing for 10% unemployment when its 8.9% allready but the figures above seem reasonable.
usa figures next out on june 5th, not sure for uk

http://www.bls.gov/cps/


I heard someone suggest california is a leading indicator for america and its 11% there now

purch

I don't think they have deliberately over-estimated. It may be their worst case guesstimate, but they won't have taken their worst case and added a bit for luck.

As it should be seen as the FSA's worst case scenario, it reveals alot.:eek:

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lostinrates wrote: »

Presumably, a worst case scenario suggests it is an overegged omlette of a figure they use to stress test...so how much do FSA and similar bods generally over estimate the figures by? is there an average?


http://uk.reuters.com/article/businessNews/idUKTRE54R1SX20090528

The FSA have been pretty useless, so I would guess not much changes, these figures are likely to be conservative rather than over-egged.

lostinrates

sabretoothtigger wrote: »

The USA was conservative by testing for 10% unemployment when its 8.9% allready but the figures above seem reasonable.
usa figures next out on june 5th, not sure for uk

http://www.bls.gov/cps/

when you say reasonable, do you mean plausible and you think it likely 50% of property from peak, 12 % unemployment, and no recovery till 2011 is a not unrealsitic suggestion? (these figures scare me!)

purch

The USA was conservative by testing for 10% unemployment when its 8.9% allready

As the unemployment rate went from 8.5% to 8.9% in one month, I'm not sure that using a rate 1.1% above the current was being particularly conservative. The way that U.S. unemployment is moving, 10% is not out of the question over the next 6 months.

Arcaine

lostinrates wrote: »

Presumably, a worst case scenario suggests it is an overegged omlette of a figure they use to stress test...so how much do FSA and similar bods generally over estimate the figures by? is there an average?


http://uk.reuters.com/article/businessNews/idUKTRE54R1SX20090528

Given that they havent really been in this situation before its anybodys guess. My cynical view is thats this is nothing more than a publicity stunt to instill confidence in the banks. They could tell us anything given that they are not actually going to publish any individual results and anyway there are still enough "off-balance-sheet" items and dodgy valuations to make the whole thing fairly pointless.

lostinrates

Arcaine wrote: »

Given that they havent really been in this situation before its anybodys guess. My cynical view is thats this is nothing more than a publicity stunt to instill confidence in the banks. They could tell us anything given that they are not actually going to publish any individual results and anyway there are still enough "off-balance-sheet" items and dodgy valuations to make the whole thing fairly pointless.

Does it make you confident in the banks? It made me feel an increase of trepidation: if they had said, for example, that most banks would cope with this, sure, but that they simply say they won't comment on results makes me think it would be a disaster!

lostinrates

purch wrote: »

As the unemployment rate went from 8.5% to 8.9% in one month, I'm not sure that using a rate 1.1% above the current was being particularly conservative. The way that U.S. unemployment is moving, 10% is not out of the question over the next 6 months.

I'm sorry: I don't understand this, the way I read it it seems contradictory if ten percent is not out of the question surely the estimate was conservative?

sabretoothtigger

I think I got the meaning right, english was not my best subjest but a conservative stress test would be a bad thing right
So the USA figures were far too lenient and the FSA ones were realistic, plausible, not too conservative

1. disposed to preserve existing conditions, institutions, etc., or to restore traditional ones, and to limit change. 2. cautiously moderate or purposefully low: a conservative estimate.

So conditions will likely change , 12% unemployment here is slightly worse then I expect but again thats what a test should do. Its definitly not too harsh imo






uk 2.1m is 6.7% and thats april 09 figure
http://www.guardian.co.uk/business/2009/apr/22/unemployment-figures-jobseekers-allowance

lostinrates

sabretoothtigger wrote: »

I think I got the meaning right,

Thank you for clarifying, I was not intimating you were wrong, just trying to make sure I understand correctly.