Another datapoint for the annals of regulatory opacity: the Congressional Oversight Panel points out in its report on the stress tests that Treasury never released the results of the baseline-scenario test.
Because results are presented on the “more adverse” scenario alone, the ability to extrapolate results from a single set of data is impaired. Even though the “baseline” scenario was likely too optimistic, publishing the results from that scenario would have improved transparency and enabled private analysts, who can play an important role in the way information is used, to present their own predictions and analyses.
If we knew how much difference there was between the baseline test and the more-adverse test, then analysts could at least do a rough-and-ready extrapolation to any forecast they liked. With only the one set of datapoints, however, it becomes impossible to tell how sensitive banks’ solvency is to changes in macroeconomic variables.
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2 comments so far
not quite. there are multiple dimensions to the inputs, so you would need several independent observations to do a linear extrapolation. or if i’m not correct, can you explain what how to do what you suggest?
- Posted by q“If we knew how much difference there was between the baseline test and the more-adverse test….”
- Posted by jckWe DO know the difference “in aggregate” as Treasury released indicative loss rates for both the baseline and adverse scenarios. Ball park figures losses are about 35% lower under the baseline scenario than the adverse one, so you can extrapolate the capital needed “in aggregate” under the baseline scenario. I think it would have been unwise to release the data per bank as that would give infornmation that could be exploited against individual banks.