The Supervisory Capital Assistance Program-Part XXI

This is the twenty first and the concluding part of the series of articles on SCAP.

Determination of Capital Needs(contd):  As seen throughout the SCAP exercise, the supervisors did not depend on a single tool, or measure to go about their job of determining the capital required for the participating BHCs.  

They made a comparitive study of the figures submitted by the firms against different, but relevant measures, and standards.   Wherever it was felt that these figures did not gel in with their own findings and not in keeping with the overall macroeconomic conditions for which they were expected to gear up to, the supervisors did not hesitate to make necessary changes, as they saw fit.   That apart, they also innovated several proprietary measures and standards to eliminate the risks of miscalculations and to ensure conformity of the exercise to the guidelines laid down for it.  

Supervisors examined several indicators of capital adequacy like pro form capital and Tier I capital, including its various components.   For instance, Tier I capital, as per the Board’s risk based capital adequacy guidelines, is made up of common and non-common equity elements.   Some of these components like Innovative Perpetual Debt Instruments, are subject to limits on their inclusion in Tier I capital.  

Some of the elements that make up the Tier I capital are common stockholders’ equity, qualifying perpetual preferred stock, certain minority interests, and trust preferred securities.   A trust preferred security is one that has characteristics of both a equity and debt issue.Intangible assets like goodwill and deferred tax assets are either included in Tier I capital upto a certain limit or not included at all.

Common equity is preferred by the supervisors as the dominant component of Tier I capital.   Existing capital adequacy guidelines prefer voting common stockholders’ equity to be the major part of Tier I capital.   Hence the requirement laid down by the supervisors, of having a dominant part of the Tier I capital, is consistent with extant regulations.  

As such, the supervisors cannot be seen to be recommending the introduction of a new capital standard.   The result of the above analysis and assessment provided a clue to the initial estimates of the capital needs of the firms.   This would enable them to be properly capitalized even in the more adverse scenario.  

Supervisors conveyed the initial assessment of the capital needs of the BHCs, after the above exercise.   The final assessment would include the actual results year to date including 2009 Q1 operating performance, and other corporate activities, such as, sale of specific assets, or businesses or capital events, such as, the new issuance of equity securities.

Supervisors evaluated the above information in terms of safety and soundness of the 19 BHCs, and also the stability of the broader financial system.   They tried to execute their mandate in the best possible way, employing all sorts of tools and measures, checking and cross-checking the veracity of facts and figures, calling for additional information where the submissions were inadequate.

                                                                                                          Concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part XX

This is the twentieth in a series of articles on the SCAP.

Determination of Capital Needs:  The SCAP exercise was initiated in the wake of Bank failures and the recessionary trends that followed it, in the United States and other advanced countries.   The purpose of the exercise was to determine the level of capital required to be maintained by the 19 large BHCs, that accounted for two thirds of the assets held by the U.S. Banking industry, and one half of all the loan exposures.

In the above connection,the 19 BHCs submitted projections for their Tier I capital, and common stockholders’ equity for the year end 2009 and 2010.   Tier I capital is made up of the paid up capital, statutory reserves, other free reserves, surplus arising from sale of assets, investment fluctuation reserves, innovative perpetual debt instruments, and perpetual non cumulative preference shares.

The progression of the capital over the scenarios, as projected by the firms, reveals a combination of credit losses, the PPNR to absorb the losses, and the generation of the required level of ALLL.   Even though the projections of the firms for these items were divergent from the supervisors’, still they served a useful purpose as a sort of benchmark.   In the course of the SCAP exercise, supervisors had time and again made suitable adjustments to the data submitted by the firms, in order to bring it in line with the provisions of the SCAP, as also to ensure ethical accounting standards.

On account of the above divergence, supervisors preferred to project a pro forma capital for 2010 for each of the firms, by applying revised estimates of credit losses and revenues.   A pro forma financial statement is one that is adjusted to reflect a projected transaction, a part of “what-if” analysis.   The base figures related to the 2008 Q4 levels of equity and capital and regulatory capital from Y-9C reports.   The Y-9C is a consolidated financial statement of Bank holding companies.  

Supervisors estimated the pro forma equity capital by rolling tax adjusted net income for the two year horizon through equity capital.   Supervisors followed the post purchase accounting basis to calculate estimated losses.   The losses and provisions are considered to arise instantly, whereas, the revenues to offset these losses are taken to accrue over a period of time.   This conservative accounting system ensures that the firms are well prepared to face up to the prospect of losses.

The reserve increases that were projected for the assessment horizon meant, that a provision for future losses was required.   That, in turn, would reduce the resources to absorb legacy losses, and increase capital needs.   In addition, the supervisors calculated the impact of payments of preferred dividends and accounted for the impact of regulatory capital rules, like limits on inclusion of deferred tax assets in Tier I capital.

                                                                                                To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assessment Program-Part XIX

This is the nineteenth in a series of articles on the SCAP.

Accounting Adjustments:  One of the major tasks for the supervisory teams, engaged in the review and assessments of the submissions of the 19 BHCs, was to ensure that the projections and the forecasts made by the firms conformed to the applicable accounting standards, and in keeping with the letter and spirit of the SCAP methodology.

Not only the supervisors had to take into account the existing accounting standards, but also any changes effected therein, and new ones introduced in the course of the SCAP exercise.   For example, the FASB guidance for what is fair value measurement and impairment was issued on April 9, 2009 necessitating resubmissions by the firms, and reassessment by the supervisors.

In the same way, the supervisors had to evaluate the potential impact of the proposed changes to the FAS 140, expected to be implemented in January 2010.   The FAS 140 lays down accounting and reporting standards in respect of transfers and servicing of financial assets, and the cancellation of liabilities.   The implementation of the FAS 140 is expected to have far reaching implications for the firms, as it could result in assets in the value of USD 900.00 billion being brought onto the balance sheets of the firms.   Correspondingly, the risk weighted assets were increased by about USD 700.00 billion, to reflect this projected consolidation.  

The creation of these new assets was also factored into the fresh and enhanced requirement of ALLL.   These were then treated as new loans.   This was one of the major accounting adjustments made.

The second set of major accounting adjustments related to the impact of the discounts on purchased impaired loan portfolios acquired during mergers in conformity with SOP 03-03.   The SOP 03-03 is an accounting standard for certain loans and debt securities, acquired in a transfer.   These loans (impaired assets) were acquired at a good discount during mergers, the amount of which is pegged at around USD 90.00 billion.   It is these discounts that make up the major part, if not entirely, of the projected losses on impaired acquired loans in the two scenarios.   Hence it was imperative to consider these discounts in assessing possible future losses to be incurred by these firms.

Supervisors made another adjustment, in respect of the value of the impaired acquired loans by showing them at their original values, and not the discounted values they were acquired at.   In other words, the principal amount and the discount were clubbed together, to bring the loan amount at par with the principal amount. as on the date of acquisition.Thereafter, these losses(projected future losses), were netted against the discount taken by the firms when they acquired these loans.

The above accounting adjustments were considered necessary to invest the SCAP process with the required level of accounting integrity, and ethical standards, expected of such an exercise.

                                                                                                   To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assessment Program-Part XVIII

This is the eighteenth in a series of articles on the SCAP.

Category-wise review and assessment(contd):

Pre Provision Net Revenue:  Business projections made by the BHCs formed the basis for the analysis of their PPNR submissions.   The assessment focussed on their consistency with the overall macroeconomic scenarios.   The firms’ internal management and financial reports were also studied, to get a proper perspective of the issue.  

Supervisors reviewed the ALCO documents of the firms, to compare them with their SCAP submissions.   The ALCO, or the Asset Liability Committee, is a high powered committee in a Bank, that normally determines the interest rates to be offered by the Bank.   Supervisors also studied the yield curve assumptions, net interest income projections, and economic value of equity assessments made by the firms, in the course of their planning process.

Also examined for this purpose, were the historical trends in the major parts of the PPNR, as the net interest income, non interest income, and non interest expenses.   This data was obtained from the regulatory reports, submitted by the firms, as well as their published financial statements.

The above evaluation was done with the help of a thorough assessment of the firms’ estimates about revenues, and the risk of losses.   Wherever necessary, supervisors made changes to the firms’ forecasts, including key assumptions to ensure consistence with the macroeconomic scenarios.   Such modifications included those to the projected growth rates, and stock price indexes.   Peer analysis was another tool employed in the process and used to identify overall trends.

The historical relationship between PPNR and its main components, to measures of macroeconomc activity were also examined.   The firm-specific differences in PPNR were identified.   The components of the PPNR that were more volatile in the past were identified, as such components would be less sustainable in strained economic conditions.

After going through the above process, the lesser of the two estimates, between the firms’ submissions, and the supervisors’ estimates were applied.

Advance for Loan and Lease Losses(ALLL):   Projections were made by the supervisors, for the required level of reserves at the end of the scenario period.   Based on these projections, they developed suitable benchmarks.  

Two distinct portfolios were identified for the purpose of determining the reserves required.   One, the vintage loans left over from the end of 2008, and, two, the new credits extended over the scenario horizon.   The total of the loan amounts in the vintage category was calculated by taking the loan book balance as at the end of 2008, and reducing these balances by the estimated losses calculated.

Coming to the new loans, the figures for these were taken from the firms, or in cases, where a firm reported nil growth in new loans, the supervisors assumed this figure as being equal to the estimated loan losses between 2009 and 2010.   Sufficient reserves were sought to be built up to cover the losses on the portfolios in 2011.

Loss rates for the vintage loans were arrived at, as being equal to the firms’ 2010 loss rate, reduced by the anticipated average percentage reduction in losses in 2011.   However, for newly extended credit, to which more stringent underwriting norms were applied, loss rates by category, from 2007 were used, to represent the expected losses in 2011. 

                                                                                               To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Progam-Part XVII

This is the seventeenth in a series of articles on the SCAP.

Category-wise review and assessment(contd):

Trading portfolio losses:  Among the 19 BHCs participating in the SCAP exercise, there are 5, that have exposures exceeding USD 100.00 billion in trading assets.   Supervisors evaluated their trading loss estimates, relative to the actual market movements, that took place during the period of the stress horizon, i.e., June 30 to Dec. 31, 2008.   This was the base for the supervisors to study the issue of projected trading losses of the firms.

For this purpose, they used information on trading book positions from the firms’ internal risk management reports.   Accordingly, they prepared their version of the projected trading losses, and made a comparative study of the firms’ submissions.   This way they identified areas with significant divergence between the firms’ submissions and their own.  Such areas of divergence came in for more detailed scrutiny and investigation, to satisfy themselves of the authenticity of the figures , as well as the correctness of their approach.  

Supervisors reviewed once again, the firms’ submissions like the shocks to prices and spreads, the methodology used by the firm to value the assets, etc.   In addition, they checked for the inclusion of material exposures and assets in the stress tests.   After carrying out this exhaustive procedure, the final estimates were arrived at, after making suitable adjustments in regard to divergent figures.   Further, the SCAP included an incremental default risk estimate for the firms’ trading book positions.

Counter-party credit risk:  Supervisors, when reviewing the estimated loss on account of counter-party credit risk, paid more attention to the reasonableness of counter-party credit risk losses, arising from growth in exposure to such parties, and credit valuation adjustments that were made related to the market shocks applied to the assets in the trading books.  

Of special interest to the supervisors was the firms’ loss estimates for the mark-to-market losses, arising from credit valuation adjustments consistent with trading shock scenario.   The credit valuation adjustment reveals the decline in the value of the counter-party’s obligations on account of the deterioration in his (counter-party’s) credit ratings.   This has a direct relationship with the firms’ earnings and the vlaue of its assets.  

During this process of assessment discussed above, supervisors took a view of the quality of the firms’ loss estimates in relation to the following:

1. Consistency in the application of the trading asset shock.
2. The comprehensiveness of the coverage of counter-parties and products.
3. The prudent treatment of legal netting, collateral and margin, and the soundness of the stress methodology employed.

The firms were also advised to calculate the IDR loss estimates for the counter-party credit losses from default.   The IDR stands for Issuer Default Ratings, which simply speaking reflects the ability of an entity to meet it’s financial commitments in time.   It was found that different firms employed different methodologies, and therefore the quality of submissions was also different.

                                                                                                        To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part XVI

This is the sixteenth in a series of articles on the SCAP.

Category-wise review and assessment(contd):

Other Loans:  These include farmland lending, loans to Governments, and others.   Hence it is a very varied portfolio of loans, and it is very difficult to apply a fixed range of parameters across them.   Hence the supervisors relied on the firms’ loss records for the past five years to analyze and evaluate the firms’ submissions.

Securities in AFS and HTM portfolios:   The major portion of securites in the Available-for-sale, and the Held-to-maturity portfolios are relatively safe, being Treasury securities, Government agency securities, sovereign debt, and high grade municipal securities.

The private securites portfolio includes corporate bonds, equities, asset-backed securities, commercial mortgage-backed securities, and non-agency residential mortgage backed securities.   The focus and emphasis of the supervisors was on analyzing and evaluating private sector securites portfolio for possible reduction in its value, on account of adverse economic conditions.  

As such they made a detailed examination of all the relevant  securities like collateral type, vintage, metropolitan area, and property type.  This was followed by a check of all the inherent strengths of each security like credit ratings, current credit support, and carrying and market values.   Each security was examined for the possibility of its impairment during its lifetime.

Supervisors examined over 100,000 securities as per CUSIP to determine loss estimates for the securities.   The CUSIP is the Committee on Uniform Security Identification Procedures, that allots the unique identification number to every stock and bond in the U.S. and Canada.      For each of the securitized assets, the credit loss rates for the underlying collateral were weighed against current credit support levels for the securities.   These loss rates were consistent with those of the unsecuritized accrual loan portfolios.   If it was found that the current level of support was not sufficient to cover the projected losses, then the value of the security was reduced proportionately, with “other than temporary impariment”(OTTI) charge, as per accounting guidelines.  

Coming to the corporate and municipal bonds, they were evaluated for their “other than temporary impairment” potential, based on the indicators such as the likelihood of its downgrade, including information from market credit spreads.   Supervisors determined OTTI for each equity security, in a situation when the stressed market value was below the carrying value.  

Based on the portfolio characteristics and ratings, the supervisors evaluated the position marks to pinpoint any anomalies, conservative or aggressive practices, and methodological outliers among the firms.   Outlier is an observation that lies outside the overall pattern of a distribution, and indicative of a problem.

Supervisors paid particular attention to the institutions with higher levels of accumulated and other comprehensive income(AOCI), relative to tangible common equity.   The AOCI is a measure of unrealized gains and losses on AFS securities based on current and market values.

The FASB or the Financial Accounting Services Board, came out with new guidelines for fair value measurements and impairments in the course of the SCAP exercise.   Firms had to resubmit data and information for the baseline scenario.   However, for the more adverse scenario, this was not done.

                                                                                                           To be concluded.

Acknowledgement: Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part XV

This is the fifteenth in a series of articles on the SCAP.

Category-wise review and assessment(contd):

Commercial and Industrial Loans:  These are loans that are extended to corporations and organisations and not directly to the consumer.   They may be working capital or Term Loans.  

The loan loss projections made by the BHCs were analyzed by the supervisors by using two standards.   One was based on the industry-wise exposures like chemicals, foodstuffs, etc, and the other, on the system of internal rating followed by the firms.   The supervisors ensured that the system followed by the firms was in conformity with their own, to get the desired result, namely, the true extent of the firms’ exposure, and the corresponding loss projections.  

 Where the firm had not taken steps to establish the default probabilities for any exposure, the supervisors completed the job.   Supervisors confirmed their own exercise with the help of similar information from third party vendors.

The Monte Carlo simulation was employed to evaluate loss estimates of the firms.   The Monte Carlo method is the use of random numbers and probability to solve problems.   This multi-pronged approach of the supervisors resulted in obtaining loss estimate figures that were consistent, in so far as firm-specific exposure was concerned, as well as the standard assumptions made for arriving at loss projections.   At the end of this exercise, the results were compared with the submissions made by the firms.   Wherever necessary, suitable adjustments were made to ensure consistency across all the 19 firms.

Commercial Real Estate Loans:  CRE loans include those extended for construction of projects like shopping malls, office complexes, residential complexes, etc.   In order to analyze and evaluate the loan loss projections of the firms, they were asked to sumbit detailed information on the following parameters:

1. Property type, whether agricultural, residential, commercial, etc.
2. Loan to value ratio: It is a ratio applied to mortgages.   Higher the ratio, the more risky the loan, and consequently, higher the rate of interest charged.
3. Debt service coverage ratio: It denotes the ability of the borrower to service his term loan obligations.
4. Geography
5. Loan maturities.

Different loans were evaluated seperately.   For instance, those for construction and land development,  non-farm, non-residential projects, etc were analyzed and evaluated seperately.   Each portfolio, being different from others, but having certain common qualities, the supervisors adopted a consitent procedure for their evaluation.   They utilized certain common industry vendor models, apart from developing proprietary ones to obtain independent loss estimates.

The loan portfolios were divided into two categories.   Those maturing in 2009 and 2010, and those maturing after 2010.   In the first case, they compared current LTV ratios with benchmark LTVs to determine the ability of the borrowers’ ability to get refinance.   In the latter case, the supervisors used the vendor models including factors like property type, LTV, DSCR, etc.   In case of construction loans, special attention was paid to the geographic nature of the project.

                                                                                                       To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part XIII

This is the thirteenth in a series of articles on the SCAP.

Review and Assessment(contd):  As we have seen earlier, how the supervisory agencies had developed special models, apart from using the existing ones in arriving at the loan loss rate ranges.   These ranges were supplied to all the 19 BHCs for submission of their projected loan losses and corresponding resources for absorbing the losses.   These ranges were fine tuned to provide for inherent differences in the portfolios of different firms and the different results likely to be obtained from them.

However, one of the factors that the agencies had to contend with, was the different business models followed by the BHCs.   As such there would be differences in the performances of the firms, their prospects and problems, etc.   In order to address the issue, the agencies developed more detailed benchmarks.  

These benchmarks for losses and resources incorporated firm-specific factors relating to their various loans, past performace, the composition of the portfolio, origination vintage (when the mortgage lender created the mortgage by securing it against the mortgager’s real property), borrower characteristics like their cash flows, financial needs, etc., geographic distribution, like exposures within national boundaries and outside their own countries, and the business mix, for example in a Bank, the business mix would relate to the deposit products vis a vis the loan products.  

This exercise helped the supervisors in two respects.   One, it gave them a common backdrop against which they could interact with the firms about their analysis on the projections made by them, and second, it provided them(supervisors) additional data to determine where these results should be adjusted.

These benchmarks developed by the supervisors were, in fact, based on existing models and approaches they were using in their routine work in monitoring risk and firm conditions.   This was part of their regular job, even before initiating the SCAP exercise.  Apart from utilizing such existing data, the agencies also called for specific additional information wherever required, in order to get a clear picture.   The supervisors were able to elicit vital information by following this procedure of applying consistent methodologies, across firms, as well as using firm-specific information about the BHCs.

Summary of the Review and Assessment process:  The purpose and intent behind the exercise was to gather the maximum information relevant to the exercise, to evaluate the information thus obtained for consistency, relevance and application, in arriving at the nearest level of loan losses likely to be suffered by the firms under weak economic conditions, and the availability of resources to the firms, to enable them to absorb the losses.

The supervisors also made suitable adjustments to the projections submitted by the firms, to bring consistence to them across institutions, and in line with the macroeconomic scenarios used as a backdrop to the exercise.

Overall, it was a comprehensive job that is expected to yield a fair result for the efforts made by the concerned in this direction.

                                                                                              To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part XI

This is the eleventh in a series of articles on the SCAP.

In the last few articles, we had examined the program design of the SCAP, and details of the exercise carried out to ascertain the capital requirements of the BHCs, through the process of submissions of data and information by the firms.

Review and Assessments:  After the participating BHCs had submitted their estimates of losses and resources, it was the turn of the SCAP supervisors to start their job of reviewing these submissions and assessing them for their accuracy, relevance, and timely decision making.

Examiners, Economists, and Financial Analysts numbering over 150 were roped in from all the concerned agencies to carry out the review and assessment.   These experts were divided into a number of teams, each of which went into one aspect of the losses and resources submissions of the 19 firms.   Each team brought with it, expertise in one particular area, like loss projections for consumer portfolios, commercial and industrial, and commercial real estate portfolios, available-for-sale, and held-to-maturity securities portfolios, trading account assets, counterparty credit risk, projections for PPNR, ALLL, etc.   Apart from this, teams were also organized to advise the SCAP on issues of Accounting, Regulatory Capital, Financial and Macroeconomic modelling.

The first thing that the supervisory teams reviewed was whether the methods adopted by the BHCs were in keeping with the guidance given by the SCAP.   Secondly, whether the firms had adhered to the letter and spirit of the guidance, in making their submissions.   And thirdly, whether the data and other information obtained was consistent with the guidelines provided to the firms.  

The submissions of the BHCs had to meet both quantitative and qualitative requirements of the SCAP, to enable the supervisors to do justice to their work.   The supervisory teams were required to analyze the firms projections from a cross-firm perspective, by using the information supplied by the firms in support of their submissions.   That would act as a test of the authenticity of the data and the underlying assumptions, as results emerging from analysis and evaluation of data from a cross-section of firms would be more dependable.

On-site examination of the firms was another important feature of the review and evaluation exercise.   This enabled the supervisors to be physically present at the firms premises, to study and absorb the actual environment prevailing there, and to satisfy themselves about the authenticity of the submissions.

Some of the most important factors that the supervisory teams had to constantly keep track of, and ensure compliance of  were:

1. To understand the particular parameters and assumptions employed by the firms.
2. The consistency of these in the backdrop of the macroeconomic scenarios.
3. The models and methodologies adopted to generate the loss and resource estimates.

By following up on the above methods and models, the supervisors hoped to keep their work on track, and arrive at the right conclusions about the losses and resources data submitted by the firms.

                                                                                                 To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve System.

The Supervisory Capital Assistance Program-Part X

This is the tenth in a series of articles on the SCAP.

The participating BHCs were asked to submit their projections, in regard to losses they were likely to incur on loans, securities, and trading activities, and the resources they could muster to absorb such losses.   In the last two articles we had examined the loss projections of the firm.   In this article, we shall examine the projections for loss absorptions to be made by the firms.

Loss Absorption:  With regard to the projections on the ability of the firms, to absorb the losses under the two scenarios, they had to provide suitable evidence to support their contentions.   And this included the projections on the pre-provision net revenue(PPNR).   PPNR denotes the income left with the firm after all the non-credit related expenses are accounted for, but before provisions, write-downs, or losses are accounted.

The firms were asked to submit projections for all the major components of the PPNR.   They were also expected to justify their projections with supporting details, evidence, etc, especially in respect of those that related to their growth in business or market share.   Also, where the PPNR projections exceeded the 2008 values under the more adverse scenario, the firms were asked to provide solid facts and figures, to have the projections accepted by the supervisors.

Apart from figures for the PPNR, the firms were also asked to submit their forecast for ALLL available to absorb credit losses on the loan protfolios, under both the scenarios.   The firms were also expected to retain a sufficient allowance at the end of the specified two year period.   After all the projections were made, the supervisors assessed the sufficiency of loan loss reserves, having regard to the size, composition, and risk characteristics of the loan portfoliok, at the end of the scenario period.

One of the major objectives behind the forecasting of losses, and the capacity of the firms to absorb them, is to restore public confidence in the firms, about their ability to perform their normal functions, especially lending, even under sever economic conditions.   Especially in the context of a worsening economic situation, with a string of adverse factors cropping up one after the other, it is imperative for supervisors to discipline the firms, to ensure compliance of all the norms applicable.   In spite of all the steps to calculate the optimum level of capital under the present circumstances, to meet the exigencies arising out of the economic downturn, it is still not 100% certain that the purpose of this exercise would be served.   The reason for this being the uncertainty regarding the range of potential macroeconomic outcomes to contend with, the inherent relationship of the firms with the macroeconomic scenarios, the continued relevance of the historical facts in the current scenario, and the possible changes in the consumer behavior, in the face of macroeconomic and institutional changes.

                                                                                                           To be concluded.

Acknowledgement:  Adapted from the official document of the Board of Governors of the Federal Reserve Banks.

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