The U.S. Federal Reserve Board has issued a paper outlining the methodology that banking regulators followed in carrying out the stress tests that will determine whether large, systemically important banks need more capital.

The Fed said Friday that the white paper is intended to assist analysts and others in understanding the results of the Supervisory Capital Assessment Program, which are expected to be released in early May.

“Starting from two economic scenarios — a consensus estimate of private-sector forecasters and an economic situation more severe than is generally anticipated – they developed a range of loss estimates and conducted an in-depth review of the banks’ lending portfolios, investment portfolios and trading-related exposures, and revenue opportunities,” the Fed explains.

“In doing so, they examined bank data and loss projections, compared loss projections across firms, and developed independent benchmarks against which to evaluate the banks’ estimates. From this analysis, supervisors determined the capital buffer needed to ensure that the firms would remain appropriately capitalized at the end of 2010 if the economy proves weaker than expected,” it adds.

All U.S. bank holding companies with year-end 2008 assets exceeding $100 billion were required to participate in the assessment, which began February 25. These institutions collectively hold two-thirds of the assets and more than half the loans in the U.S. banking system, it notes. More than 150 examiners, supervisors and economists from the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation participated in the process.

IE