Assessing the Fed’s CCAR Scenarios

2

08

09

10

11

12

13E

14F

15F

16F

-10

-8

-6

-4

-2

0

2

4

6

BaselineAdverseSeverely Adverse

CCAR Baseline and Downside Scenarios

Sources: BEA, Federal Reserve, Moody’s Analytics

Real GDP % change, annual rate

3

08

09

10

11

12

13E

14F

15F

16F

-10

-5

0

5

MA Baseline Fed Baseline

Moody’s Baseline Is More Optimistic…

Sources: BEA, Federal Reserve, Moody’s Analytics

Real GDP % change, annual rate

4

08

09

10

11

12

13E

14F

15F

16F

-10

-5

0

5

MA S4 Fed Severely Adverse

…But Moody’s S4 Is Similar to the Severe Adverse

Sources: BEA, Federal Reserve, Moody’s Analytics

Real GDP % change annual rate

Numbers are peak-to-trough % decline

-4.3%

-4.3%

-4.7%

5

08

09

10

11

12

13E

14F

15F

16F

-12

-9

-6

-3

0

3

6

Baseline

Adverse

Severe Adverse Driven by a Euro Zone Crackup…

Sources: Federal Reserve, Moody’s Analytics

Euro zone real GDP, % change annual rate

6

08

09

10

11

12

13E

14F

15F

16F

-3

0

3

6

9

12

15

18

Baseline

Adverse

Severely Adverse

Sources: Federal Reserve, Moody’s Analytics

Developing Asia real GDP, % change annual rate…Much Weaker Emerging Economies…

7

08

09

10

11

12

13E

14F

15F

16F

-20

-15

-10

-5

0

5

10

15

20Baseline Adverse Severely Adverse

Sources: Federal Reserve, Moody’s Analytics

House prices, % change annual rate

…A Resumption of the Housing Crash…

8

08

09

10

11

12

13E

14F

15F

16F

1

2

3

4

5

6Baseline Adverse Severely Adverse

…And Significant Aversion to Credit Risk

Sources: Federal Reserve, Moody’s Analytics

BBB corporate bond yield less 10-yr Treasury yield, ppt

9

08

09

10

11

12

13E

14F

15F

16F

0

1

2

3

4

5

6Adverse

Baseline

Severely Adverse

Adverse Driven by a Surge in LT Treasury Rates…

Sources: Federal Reserve, Moody’s Analytics

10-yr Treasury bond rate, %

10

08

09

10

11

12

13E

14F

15F

16F

3

4

5

6

7

8

Severely Adverse

Baseline

Adverse

…Sharply Higher Mortgages Rates…

Sources: Federal Reserve, Moody’s Analytics

30-yr fixed mortgage rate, %

11

08

09

10

11

12

13E

14F

15F

16F

-60-50-40-30-20-10

01020304050

Baseline Adverse Severely Adverse

…And Much Weaker Real Estate Markets

Sources: Federal Reserve, Moody’s Analytics

Commercial real estate prices, % change annual rate

12

13E

14F 15F 16F-0.5

0.0

0.5

1.0

1.5

2.0

2.5Baseline Adverse Severely Adverse

Fed Maintains Its’ ZIRP in Both Scenarios…

Sources: Federal Reserve, Moody’s Analytics

3-mo Treasury bill rate, %

13

08

09

10

11

12

13E

14F

15F

16F

0

1

2

3

4

5

6Adverse

Baseline

Severely Adverse

…Resulting in Different Shaped Yield Curves

Sources: Federal Reserve, Moody’s Analytics

10-yr Treasury yield less 3-mo Treasury bill, ppt

14

08

a a a 09

a a a 10

a a a 11

a a a 12

13E

14F

15F

16F

4

5

6

7

8

9

10

11

12

AdverseSeverely AdverseBaseline

Sources: BLS, Federal Reserve, Moody’s Analytics

Unemployment rate %

Unemployment Rises Sharply in Both Scenarios…

15

13E

14F 15F 16F-1

0

1

2

3

Baseline Adverse Severely Adverse

…Resulting in Lower Inflation

Sources: BLS, Federal Reserve, Moody’s Analytics

CPI % change, annual rate

16

08

09

10

11

12

13E

14F

15F

16F

7,000

10,000

13,000

16,000

19,000

22,000BaselineAdverseSeverely Adverse

Stock Prices Plunge in Both Scenarios…

Sources: CBOE, Federal Reserve, Moody’s Analytics

Dow Jones Industrial Average

17

08

09

10

11

12

13E

14F

15F

16F

10

20

30

40

50

60

70

80

90

BaselineAdverseSeverely Adverse

…Financial Volatility Surges…

Sources: CBOE, Federal Reserve, Moody’s Analytics

S&P 500 Volatility Index

18

08

09

10

11

12

13E

14F

15F

16F

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Baseline

Adverse

…And the U.S. $ Rises In Value

Sources: Federal Reserve, Moody’s Analytics

Euro/USD exchange rate

19

U.S. National November 4th

6 largest countries November 6th

40 smaller countries November 7th

9 global regions November 7th

U.S. states and metros November 8th

U.S. house prices November 8th

CreditForecast® November 15th

Timeline of Moody’s Analytics CCAR Scenarios

For more information, visit:economy.com/ccar

Or, contact us directly at:610.235.5299 help@economy.com

economy.com

21

© 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling.