US banks lowball loan pain, overstate trading hit in Fed tests

Wall Street underestimated how damaging the Federal Reserve’s stress scenario would be to their loan books, evidence from their internal projections show.

On average, the eight US systemic banks guessed the Fed’s severely adverse scenario, used to conduct the latest Dodd-Frank Act stress test (DFAST), would lead to loan-loss rates of 4.1%. In contrast, the Fed’s own estimates for these banks averaged 5.2%. 

The banks also lowballed their expected provisions on loans and leases (PLL) relative

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