Tests looked at fraud, lawsuits and meltdown

THE FEDERAL Reserve’s stress test results, released two days ahead of schedule yesterday, put banks’ balance sheets through a projected financial meltdown over a two and a quarter year period.

The Fed said the 19 banks taking part would lose a total of $534bn under the worst-case scenario, including loan losses, market shock as well as operational risks such as fraud, computer systems failure and employee lawsuits.

While some of the failed banks criticised the Fed’s methods and standards, others were impressed by the stringency of the probes.

“There’s so much more credibility when you actually have some of these banks fail the stress tests,” said Keith Davis at Farr, Miller & Washington.