US banks underestimate loan losses in Fed stress test

Systemic lenders predict 34% lower hit to their loan books in latest DFAST exercise

US systemic lenders have continued to lowball simulated loan losses in the Federal Reserve’s stress test, with the gap between their respective estimates widening further.

Under the severely adverse scenario of this year’s Dodd-Frank Act stress test (DFAST), the eight lenders modelled $161.3 billion of aggregate loan losses, $83.6 billion or 34% short of the Fed’s estimate. Last year, the gap was $64.8 billion, or 28%.

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