Moody’s Analytics, a leading independent provider of economic
forecasting and stress testing solutions, has analyzed the Federal
Reserve’s Comprehensive Capital Analysis and Review (CCAR) scenarios for
2014 and has developed detailed economic scenarios for more than 50
countries including the U.S. and its states and metropolitan areas.
Moody’s Analytics senior economists also considered possible narratives
driving the CCAR scenarios, their likelihood of occurring and the
severity of the scenarios.
2014 Adverse Scenario Driven By a Surge in Long-Term Treasury Rates (Graphic: Business Wire)
Among the scenarios to be considered by financial institutions, the one
labeled “Severely Adverse” envisions conditions similar to those of the
Great Recession, with unemployment rising to a post-World War II high.
The hypothetical downturn is driven by sharp declines in Europe and in
emerging markets, as well as a new U.S. housing crash. The “Adverse”
scenario assumes that global bond investors lose faith in the Federal
Reserve’s efforts to normalize monetary policy, causing long-term
interest rates to rise sharply. These higher rates derail recoveries in
the housing and commercial property markets, resulting in a new
recession.
“The CCAR’s adverse scenario realistically represents market concerns
that long-term interest rates will surge and short-circuit the economic
recovery as the Federal Reserve winds down its bond-buying program and
normalizes short-term interest rates,” said Mark Zandi, Chief Economist
of Moody’s Analytics.
Expanding beyond the 26 variables provided by the Federal Reserve,
projections are available for more than 1,800 variables at the national
and regional level, including unemployment insurance claims, consumer
credit debt outstanding, auto sales volumes, oil prices, used car
prices, ABA/MBA delinquency rates and personal savings rates. The
projections include forecasts for the Case-Shiller Home Price Indexes as
well as for U.S. consumer credit conditions as detailed by
CreditForecast.com.
“These scenarios will help banks and other financial institutions more
accurately assess the risks in their consumer credit portfolios,” said
Cristian deRitis, Director of Moody’s Analytics Credit Analytics group.
“For example, credit card and other consumer credit providers will want
to incorporate expanded data on unemployment insurance claims, income
and savings rates in forecasting future losses and loan origination
volumes.”
CCAR scenarios are available through several of Moody’s Analytics
forecasting services, including the Global Macro, U.S. Macro, State and
Metro Forecast Databases, Case-Shiller Home Price Index Forecasts, and
CreditForecast.com.
A detailed overview of the 2014 CCAR scenarios, examining the severity
and probability of each one, will be presented by Moody’s Analytics in
an interactive, one-hour webinar on November 5 at 11a.m. EST. Interested
parties are welcome to attend and can register via the following link: www.economy.com/ccar/webinar.
For more information, visit http://economy.com/ccar.
About Moody’s Analytics
Moody’s Analytics helps capital markets and risk management
professionals worldwide respond to an evolving marketplace with
confidence. The company offers unique tools and best practices for
measuring and managing risk through expertise and experience in credit
analysis, economic research and financial risk management. By providing
leading-edge software, advisory services and research, including
proprietary analyses from Moody’s Investors Service, Moody’s Analytics
integrates and customizes its offerings to address specific business
challenges. Moody's Analytics is a subsidiary of Moody's Corporation
(NYSE:MCO), which reported revenue of $2.3 billion in 2011, employs
approximately 7,200 people worldwide and has a presence in 29 countries.
Further information is available at www.moodysanalytics.com.
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