As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S. In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.
“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” the central bank said in announcing the stress tests last week. In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis. FULL REPORT