Ep23 “When Banking Fails” with Amit Seru
All Else Equal: Making Better Decisions
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The Role of Stress Tests in the Financial Crisis
Amitai Etzioni: I'm somewhat surprised that particularly since the financial crisis in 2008, stress testing became something that everybody was busy with. And then at the same time, the Fed who is involved in this is the one who is raising these interest rates,. Have these stress tests missed out on the possibility of correlated deposits in combination with rising interest rates leading to this problem? How could this be missed? He says when we do these things, we take all else as being equal and it's not.etzionis: My preferred way of thinking about why this might have happened is regulators designed the stress test to address a particular situation that had happened in 2007-08.
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