Mid-cycle stress tests tougher on banks than DFAST

Median CET1 ratio drops 200bp more under mid-cycle than Fed-run tests

Internal stress tests proved harder on participating banks than this year’s regulator-set Dodd-Frank Act stress tests (DFAST), Risk Quantum analysis shows.

Firms subject to DFAST must conduct mid-cycle health checks using their own baseline, adverse and severely adverse macroeconomic scenarios. These follow the annual stress tests, which use scenarios devised by the Federal Reserve. 

The median bank among the 18 DFAST participants projected that its Common Equity Tier 1 (CET1) would drop 250

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