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Did Federal Reserve Bank Stress Tests Fuel Too Much Confidence?

The Federal Reserve released the results of its third round of bank stress tests yesterday (Tuesday), determining 15 of the 19 tested banks were in good enough shape to withstand a severe recession.

The Fed tested whether banks have enough capital to survive an unemployment rate of 13%, a 21% drop in home prices, slowing economic growth in Europe and Asia, and a 50% drop in stock prices.

The tests assumed that banks would face $534 billion in losses in just over two years, and measured how much capital remained. The Fed earmarked $341 billion of those losses for loan portfolios.

The results of the bank stress tests show how institutions have worked to shore up balance sheets in the wake of a crisis - but can simulations really prove that banks won't fail?



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Five Things Obama Didn't Want You to Hear in His State of the Union

Seeking to put the best possible spin on his message, President Barack Obama took some liberties with the truth in his State of the Union address.

Although the president never actually lied, he repeatedly left out facts that contradict his claims of success.

President Obama hadn't yet left the House chamber when the reality check started. And it didn't take long to find some pretty big the holes in the State of the Union address.

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