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From Financial Crisis to Global Recovery$
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Padma Desai

Print publication date: 2011

Print ISBN-13: 9780231157865

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231157865.001.0001

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Banking Sector Stress Tests

Banking Sector Stress Tests

United States Versus the European Union

Chapter:
(p.21) 2 Banking Sector Stress Tests
Source:
From Financial Crisis to Global Recovery
Author(s):

Padma Desai

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231157865.003.0002

This chapter discusses the reforms for the banking sector in the United States. In 2008, the Troubled Asset Relief Program (TARP) was initiated to advance a cash buffer to affected banks. But before banks could seek out profitable lending opportunities, the Federal Reserve devised a stress test for major banks in order to examine the assets in their balance sheets and measure their potential losses over a two-year period under the worst-case scenario of a severe recession. Despite having doubts on the outcome, the results indicated that the banking industry was in better shape than anticipated, with few glitches according to an independent assessment. The stress tests and TARP were premised on the expectation that banks would restructure their assets and devise forecasting regulations for similar financial downturn in the future. The chapter also considers the banking sector in the EU.

Keywords:   banking sector, United States, Troubled Asset Relief Program, TARP, Federal Reserve, EU, stress tests

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