US Federal Reserve considers using Bitcoin’s crash as ‘stress test’

The US Federal Reserve is considering using Bitcoin's market crash in its annual stress test as it aims to develop a more "dynamic approach"

The United States Federal Reserve is considering using Bitcoin’s market crash in 2018 as a supervisory stress test.

According to a policy statement filed in the Federal Register on February 28th, the annual stress test will consider Bitcoin’s demise as a “salient risk” that will be taken into account.

The annual stress tests were brought in after the 2008 financial crisis. It involves the Board of Governors assessing three scenarios: “Baseline, adverse, and severely adverse.”

The board will also assess a “firm’s balance sheet, risk-weighted assets, net income, and resulting post-stress capital levels and regulatory capital ratios.”

A new policy statement has declared that the tests will become more salient to ensure all angles are covered, with it being “recommended that the Board consider extraordinary shocks, such as a war with North Korea, the collapse of the Bitcoin market, or major losses caused by trader misconduct, in its scenarios.”

These changes will come into effect after April 1st, which is when the board will outline any changes to the stress test formula.

The board added: “Together, the Dodd-Frank Act supervisory stress tests are intended to provide company management and boards of directors, the public, and supervisors with forward-looking information to help gauge the potential effect of stressful conditions on the ability of these large banking organizations to absorb losses, while meeting obligations to creditors and other counterparties and continuing to lend.”

After reaching an all-time high of $20,000 in December 2017, Bitcoin has fallen dramatically, hitting a low point of $3,150 one year later.

While Bitcoin has been hit with a huge move to the downside, many altcoins have fared much worse, with some recording 98% losses in 2018.

For more news, guides, and cryptocurrency analysis, click here.

Related Articles