In February, the Federal Reserve published the macroeconomic scenarios for the 2023 stress test of large banks under the Dodd-Frank Act. In the “severely adverse” scenario, there is a steep decline in interest rates, which return to low levels for the full three years of the scenario. In the immediate aftermath of the collapse of Silicon Valley Bank (SVB), some commentators noted wryly the mismatch between this 2023 stress and the actual sharp rise in interest rates over the past couple of years, which was a major factor in bringing SVB down.
For reasons that need not detain us here, banks of…
