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Making Sense of Negative Interest Rates in the 2016 CCAR Severely Adverse Scenario

The Novantas Perspective series provides timely and expert viewpoints on a variety of detailed banking industry subjects. It finally happened: this year’s CCAR Severely Adverse scenario has a “severe global recession” with a negative three-month Treasury rate. Since the U.S. has never experienced negative rates, this scenario is in the “out of sample” range of every bank’s Stress Testing model — meaning that non-modeled approaches will play a bigger role in this year’s submission. In this Perspective, we provide our first-blush expectation for (1) what would happen in this Severely Adverse scenario and (2) how it affects PPNR modeling. On ...

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