NEW YORK ( TheStreet) -- The Federal Reserve's stress test models envision a much harsher downturn in the U.S. than Europe despite current reality , according to KBW analyst Frederick Cannon.
The Fed requires banks with large trading operations- Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS) and Wells Fargo (WFC) to conduct a stress on their trading book and private equity positions based on price and rate movements that occurred in the second half of 2008. The central bank focuses on that period because it was a time of severe market dislocations and the failure of a major globally active financial institution.
The banks will also have to consider additional stresses from the ongoing situation in Europe, although the scenarios envisioned in Europe aren't quite as harsh as one would expect.
"In trying to duplicate the financial crisis of 2008-09, in recreating that, the
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