You are a market risk analyst at a small bank and need to run the stress testing based on the US FRB's stress testing scenarios. Estimate P&L based on the stress scenarios provided:

Q1: In the yellow section to the right, state your assumptions used in pricing the assets in the scenario.

Q2: Explain the rationale for selecting that period.

Q3. What is the driver that creates that stressed impact?

Q4. After finishing stress testing, state the benefits of using many quarters in this scenario.

Q5. After applying CCAR, which quarters have the biggest impact?

 

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ASSET/LIABILITY STRESS TEST 2021 CCAR Supervisory Severely Adverse https://www.federalreserve.gov/publications/stress-test-scenarios-februan 2020 EOY Baseline 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2024 Q1 Real GDP growth 2.30 (5.50) (4.00) (3.30) (1.00) (1.00) (1.00) (0.20) 6.70 6.70 6.70 6.70 6.70 6.70 Nominal GDP growth Real disposable income growth Nominal disposable income growth Unemployment rate CPI inflation rate 3-month Treasury rate 5-year Treasury yield 10-year Treasury yield BBB corporate yield Mortgage rate Prime rate Dow Jones Total Stock Market Index (Level) House Price Index (Level) 4.10 (4.80) (3.40) (2.90) (0.40) (0.10) 0.20 1.00 8.30 8.40 8.50 8.80 8.90 9.00 11.80 2.80 (9.90) (4.10) (0.60) 0.30 0.10 0.60 5.20 5.50 4.90 4.40 3.90 3.10 13.70 3.80 (9.30) (3.40) 0.20 1.10 1.10 1.70 6.50 7.00 6.40 6.10 5.70 5.00 6.60 7.80 8.60 9.30 9.70 10.10 10.50 10.80 10.20 9.60 9.10 8.50 8.00 7.40 2.10 1.30 1.00 1.00 1.20 1.20 1.30 1.50 1.60 1.70 1.80 2.00 2.10 2.20 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.40 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.40 0.50 0.60 0.60 1.00 0.30 0.30 0.30 0.30 0.30 0.50 0.60 0.80 0.90 1.10 1.20 1.30 1.50 2.40 4.90 5.70 6.00 6.00 6.00 5.70 5.40 5.10 4.80 4.50 4.20 3.90 3.60 2.70 3.50 3.70 3.80 3.80 3.80 3.70 3.70 3.60 3.60 3.50 3.40 3.40 3.30 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 39,528.30 23,194.50 Commercial Real Estate Price Index (Level) 226.90 294.10 Market Volatility Index (Level) 32.80 222.80 288.20 70.00 19,178.40 213.30 279.30 65.80 17,649.80 206.00 267.40 62.00 17,711.10 197.90 249.50 57.60 18,626.10 190.20 231.70 55.70 20,672.20 182.40 213.90 22,090.90 174.80 196.10 24,004.10 171.90 184.20 25,976.50 172.00 178.20 28,166.20 174.70 178.20 30,648.80 177.30 178.20 33,456.20 179.80 178.40 36,631.20 183.20 180.70 48.60 43.60 39.40 36.30 33.30 30.30 28.30 27.30 Ticker 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 02 2022 Q3 2022 Q4 2023 Q1 2023 02 2023 03 2023 Q4 2024 Q1 Assumptions FNMA 1.02 01/19/28 (Federal National Mortgage Trust) $ 10,000,000 SLMA 2014-2 A3 03/25/55 (SLM Student Loan Trust) 5,000,000 TO.125 12/31/21 (US Gov't Bond) $ 15,000,000 T2.25 03/31/26 (US Gov't Bond) DELL 1.625 06/24/24 (Dell Corp) $ 10,000,000 $ 3,000,000 GM 3.1 01/12/32 (GM Corp) $ 8,000,000 SPDR Dow Jones Industrial Average ETF Trust Vanguard Real Estate ETFs $ 15,000,000 $ 14,000,000 Net USD Value 80,000,000 ASSET/LIABILITY STRESS TEST 2021 CCAR Supervisory Severely Adverse https://www.federalreserve.gov/publications/stress-test-scenarios-februan 2020 EOY Baseline 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2024 Q1 Real GDP growth 2.30 (5.50) (4.00) (3.30) (1.00) (1.00) (1.00) (0.20) 6.70 6.70 6.70 6.70 6.70 6.70 Nominal GDP growth Real disposable income growth Nominal disposable income growth Unemployment rate CPI inflation rate 3-month Treasury rate 5-year Treasury yield 10-year Treasury yield BBB corporate yield Mortgage rate Prime rate Dow Jones Total Stock Market Index (Level) House Price Index (Level) 4.10 (4.80) (3.40) (2.90) (0.40) (0.10) 0.20 1.00 8.30 8.40 8.50 8.80 8.90 9.00 11.80 2.80 (9.90) (4.10) (0.60) 0.30 0.10 0.60 5.20 5.50 4.90 4.40 3.90 3.10 13.70 3.80 (9.30) (3.40) 0.20 1.10 1.10 1.70 6.50 7.00 6.40 6.10 5.70 5.00 6.60 7.80 8.60 9.30 9.70 10.10 10.50 10.80 10.20 9.60 9.10 8.50 8.00 7.40 2.10 1.30 1.00 1.00 1.20 1.20 1.30 1.50 1.60 1.70 1.80 2.00 2.10 2.20 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.40 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.40 0.50 0.60 0.60 1.00 0.30 0.30 0.30 0.30 0.30 0.50 0.60 0.80 0.90 1.10 1.20 1.30 1.50 2.40 4.90 5.70 6.00 6.00 6.00 5.70 5.40 5.10 4.80 4.50 4.20 3.90 3.60 2.70 3.50 3.70 3.80 3.80 3.80 3.70 3.70 3.60 3.60 3.50 3.40 3.40 3.30 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 39,528.30 23,194.50 Commercial Real Estate Price Index (Level) 226.90 294.10 Market Volatility Index (Level) 32.80 222.80 288.20 70.00 19,178.40 213.30 279.30 65.80 17,649.80 206.00 267.40 62.00 17,711.10 197.90 249.50 57.60 18,626.10 190.20 231.70 55.70 20,672.20 182.40 213.90 22,090.90 174.80 196.10 24,004.10 171.90 184.20 25,976.50 172.00 178.20 28,166.20 174.70 178.20 30,648.80 177.30 178.20 33,456.20 179.80 178.40 36,631.20 183.20 180.70 48.60 43.60 39.40 36.30 33.30 30.30 28.30 27.30 Ticker 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 02 2022 Q3 2022 Q4 2023 Q1 2023 02 2023 03 2023 Q4 2024 Q1 Assumptions FNMA 1.02 01/19/28 (Federal National Mortgage Trust) $ 10,000,000 SLMA 2014-2 A3 03/25/55 (SLM Student Loan Trust) 5,000,000 TO.125 12/31/21 (US Gov't Bond) $ 15,000,000 T2.25 03/31/26 (US Gov't Bond) DELL 1.625 06/24/24 (Dell Corp) $ 10,000,000 $ 3,000,000 GM 3.1 01/12/32 (GM Corp) $ 8,000,000 SPDR Dow Jones Industrial Average ETF Trust Vanguard Real Estate ETFs $ 15,000,000 $ 14,000,000 Net USD Value 80,000,000