Not stressed enough

Recent turmoil in the US subprime mortgage market has seen mass downgrades, falling prices and a drying-up of liquidity in the secondary market. Did banks' stress tests prepare them adequately and were scenario simulations up to the task? Clive Davidson investigates

The recent market troubles arising from the US subprime mortgage market have caught many investors and dealers on the hop. Delinquencies have far exceeded historical precedent, the rating agencies have downgraded hundreds of securities backed by subprime loans, and prices in the secondary market have plummeted amid a drying-up of liquidity. Spooked investors have refused to extend credit to virtually any structured credit investor, while hedge funds, facing margin calls on loss-making credit

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