US Banks Stress Test - SCAP (Supervisory Capital Assessment Program)

On 24 Apr, Fed released the method it used to conduct stress tests of 19 biggest US banks.
press release
PDF file

Have browsed through it, trying to figure out what it means..

Some highlights:
It is called SCAP (Supervisory Capital Assessment Program).

1. SCAP Template
The SCAP template is in Appendix A (of the PDF file).
(Read the PDF file for further breakdown of items)

Few parts:

a. Loan and Security Categories to be included in the Loss Estimates

• Loans (many different types of loans)
• Commitments and Contingent Obligation
• Securities
• Trading Account

b. Resources to absorb losses

• Pre-provision Net Revenue
• Allowance for Loan Losses

c. Post Scenario Tier 1 Capital

2. Scenarios

Year to assess: 2009, 2010
2 scenarios: baseline scenario, more adverse scenario

On page 6, there is a Table 1 to show how they formulate the 2 scenarios.

• Average baseline scenario for Real GDP and Civilian Unemployment Rate is calculated by using the average of Consensus Forecasts, Blue Chip and Survey of Professional Forecaster.
  Average baseline for House Prices is by using Case-Shiller 10-city Composite Index.
  
• "More Adverse" Scenario is mentioned in Page 5 Footnote. (refer to the PDF file)
  It was mentioned in the text, "More Adverse" scenario is not "Worst Case" scenario. It is "conditions that are severe but plausible"

3. Securities in Available-for-Sales (AFS) and Held-to-Maturity (HTM) Portfolios

All those ABS, CMBS, RMBS etc.. are here.
Important ! These are the so called "toxic assets".

How is the new FASB guidance on fair value measurement and impairments (see my previous post) being used ?

• Baseline scenario: use FASB new guidance (read: not mark-to-market)
• More adverse scenario: not using FASB new guidance (read: mark-to-market)
  

Some questions to ponder:

• Is the "More Adverse" scenario adverse enough compared to reality ? Is the modelling reasonable ? How to ensure accuracy of inputs ?
• How will the stress test be used ? What happens next if passed ? What happens next if failed ?

Business Quiz from Tutor2U

tutor2u is the "leading publisher of e-learning resources for Economics, Business, Politics, Enterprise, Law, Sociology, History, Religious Studies and related subjects".

Many free and useful resources are available from the website.
Some of the more relevant subjects for this blog will be: Economics, Business Studies etc..

One of the tools (relevant to this blog) that comes with lots of fun is:
Business Quiz

Try it out :-)

CFA: Shareowner Rights across the Markets: A Manual for Investors

PDF file of Shareowner Rights across the Markets: A Manual for Investors

On 16 April 09, CFA Institute Centre for Financial Market Integrity has launched a manual "Shareowner Rights across the Markets: A Manual for Investors" to help global investors to understand their rights in 22 of the largest markets, namely:

Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Malaysia
Mexico
Poland
Russia
South Africa
South Korea
Switzerland
Taiwan
Turkey
United Kingdom
United States

This Manual for Investor is indeed useful, especially now that investors can invest globally but face with lack of information and means to seek help when potential frauds/mismanagement happen in companies invested.

For each country, it comes with these sections:
1. Summary of Current Shareowner Rights
2. Current Engagement Practices and Shareowner Rights Developments
3. Legal and Regulatory Framework
4. Key organizations with information relevant to shareowner rights in the country.
Indeed a very good resource for shareholder activism.

Surprised though, couldn’t find Singapore in the lists of 22 largest markets.

In the Introduction, there is also an insightful section which states GovernanceMetrics International (GMI) criteria to determine whether a board member is to be classified as independent board member. We can use this criteria to determine and "clean up" the pseudo-independent board members as a start.

If you find this post useful, you may check out my other posts on shareholder activism.

Recession Survival Guide - Ireland

Ireland’s Financial Regulator has come out with a useful Recession Survival Guide.

Some highlights:
Managing on Less Money
Step 1: Financial Health Check
Step 2: Budget Planner
Step 3: Cost Comparisons

Dealing with Redundancy (meaning being laid off) :
Redundancy information
Mortgage Repayment Protection

Dealing with Debt:
Credit Card Comparison
Debt Consolidation

This is really cool ! I like the Cost Comparisons, Redundancy Information and Credit Card Comparison especially. They go to such extent to provide information to help its peoples in recession.

You may wish to explore around. It’s really an insightful website on cost cutting.
However, there are peoples who argue that this may set off a deflationary cycle and make things worse. True also..

I think the key theme is "spend necessarily, spend smart and look for value deals".
The website cuts information cost for such value deals.