How much do these things overestimate usually?

mbga9pgf

We need to remember, they may have published the input variables, they certainly havent revealed the results. If this was a confidence boosting measure, surely publishing the results would be a good idea? Unless they ran the test and something scared the crap out of them so much that they refused to publish the results? I personally think some of the state-owned banks balances are going to be shocking at a 50% drop with 12% unemployment.

Remember, until Q3 2007, house prices only ever went up... or at least that was what was hoped by Northern Crock...

purch

So the USA figures were far too lenient and the FSA ones were realistic, plausible, not too conservative

Ah ha.

I thought we might be talking at cross confuzzlations. :eek:

So we were both saying the same thing, but using different words

purch

I personally think some of the state-owned banks balances are going to be shocking at a 50% drop with 12% unemployment.

I fear you might be correct there.

purch

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?

Sorry I was using Conservative in relation to how the estimates would effect the result of the stress test, rather than the actual estimate itself.

There is an outside chance that I might, one day read what I've typed before hitting 'Submit'......but it's unlikely as it ruins all the fun !!!! :cool:

lostinrates

purch wrote: »

Sorry

nothing to apologise for. I am not one who pretends to understand economics and the fault, if there is one, is mine for wanting over clarification in order to make sure I understand what is being said

sabretoothtigger

[FONT=Georgia, Times New Roman, Times, serif]Investors fear bank stress tests too lenient [/FONT] [FONT=Arial, Helvetica, sans-serif]Shares in British banks fell after it emerged that the worst-case economic scenarios used to test the capital strength of banks have been less severe than assumed in financial markets[/FONT]

[FONT=Arial, Helvetica, sans-serif]
[FONT=Arial, Helvetica, sans-serif]http://link.ft.com/r/S4XZQQ/QW2ZG/42G8K/R44Q6/EOJN3/W1/h[/FONT] [/FONT]

Generali

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

Under the MiFID rules (the EU directive covering the implementation of new compliance legislation a couple of years back which included 'stress testing') it was up to financial institutions to devise their own tests, not the FSA.

When I stress tested the hedge fund, I took a series of scenarios, the worst of which was 70% loss on the portfolio and all clients demanding their money back. We were very well capitalised so even this extreme event wouldn't have caused a failure of the fund to be able to fulfill its obligations although it would have had to be wound up quickly.

When I wrote the document my idea was basically to test the limits of the fund - not if it would break but what would it take to break it. Now for a bank things are a little more complex than for a small fund but if I was running the compliance area of a bank, I'd be pushing to find out what it would take to ruin it.

purch

what it would take to ruin it

Not a lot, probably. :eek:

*MF*

So, 50% fall in house prices, as part of how they measure their worst scenario on the "downside" - are they still missing the main issue?

When the "authorities" explain in detail how they will address, not the "downside", but the unrealistic upward movements in prices, based largely on large global capital movements then maybe I would be reassured they know what they are doing.

It was the unrealistic "upside", and the regulatory and political blindness to the risks, which caused the problems, surely?

When anything halves in value - the questions for me remain:

"What caused it to double in the first place" and "Who allowed it to happen"?

Generali

purch wrote: »

Not a lot, probably. :eek:

Apparently what it takes is buying a Dutch bank and engaging in a load of hubristic stuff before pushing off with a large amount of cash in a metaphorical wheelbarrow.