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Rising Rates Gives a Glimpse Into a New Kind of Stress Test for Banks

“Banks are starting to come clean about their rate risks.


B of A recently said it could lose as much as $11 billion if interest rates continue to rise.

FORTUNE — Banks have mostly been tight-lipped about what rising interest rates would mean for their bottom lines. They will soon have to open up a little more to regulators and investors.

For the first time this year, the Federal Reserve is requiring the nation’s 18 largest banks to submit mid-year stress tests, showing how they would perform if they were hit with a negative economic shock, like a spike in unemployment or interest rates. The results are due to the Fed by July 5th. Unlike the bank stress tests conducted at the beginning of the year, though, the Fed will not run its own test, or publicly critique the results. However, the banks will be required to make the results public at the end of September.

Bankers are meeting with Fed officials behind closed doors next week in Boston to discuss the stress tests. There has been some contention over the process in the past. Bank executives have expressed frustration that the Fed won’t say how it gets its results. At a similar conference last year, Wells Fargo’s treasurer, Paul Ackerman, reportedly drew applause from bankers when he said he still didn’t get how the Fed’s loss estimates could be so different than his bank’s.

MORE: Banks will take a hit on refi bust….”

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