1.) "Each potential BHC (bank holding company) was instructed to estimate potential losses on its loan, investment securities, and trading portfolios." Does anyone see a problem here? The banks estimated the losses. That's a great example of the fox guarding the hen house.
2.) Consider the following table:
Click for a larger image
This is the set of assumptions provided to the firms that were "a common set of indicative loss rate ranges for specific loan categories under conditions of the baseline and the more adverse economic scenarios. Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate."
Where available, let's compare these rates to information from the latest Quarterly Banking Profile from the FDIC.
Above is a chart for the non-current rates on loans secured by 1-4 family residences. This is the current experience. The numbers in the table are for the cumulative two year loss rate in percent. Currently, the actual experience of first lien mortgages are right in line with the baseline scenario. The first lien and HELOCS are below. It's extremely important to remember these numbers don't exactly correlate -- one is a quarter over quarter change and one is a cumulative two year scenario.
Above is a chart of non-current C and I loan rates.
Above is a chart for currrent credit card loss rates.
Remember with all of these chart we have to convert the current numbers into a "cumulative 2-year loss rate". But, given current numbers the collateral assumptions aren't bad.
