Stress-test trading losses out of sync with banks’ market risk
Trading and counterparty losses triple those implied by banks’ market RWAs
Bank trading losses estimated under the Federal Reserve’s annual stress tests were more than three times higher than the amount implied by their market risk-weighted assets, Risk Quantum analysis shows.
Data from this year’s Dodd-Frank Act stress tests (DFAST) show that 43% of total losses projected under the severely adverse stress scenario across 12 of the largest participants were due to trading and counterparty risks. However, market RWAs represent just 13% of total RWAs on average for
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