Federal Reserve stress tests concluded last month did not hobble banks as badly as last year. One reason? The effect of accumulated other comprehensive income (AOCI) on participants’ projected capital through the nine-quarter crisis simulation.
Unrealised gains and losses on securities a bank plans to sell flow through to their book equity as AOCI. Participants in the Fed’s annual stress tests must estimate how the value of their portfolios will gyrate under its chosen scenarios, and add or