June 09, 2009

The federal government should repeat its stress tests of the nation's largest banks if its assumptions about the severity of the economic downturn prove too rosy, according to a congressional oversight report to be released today.The Congressional Oversight Panel, which oversees the $700 billion government bailout of the financial industry, generally praised the bank evaluations, which assessed the firms' financial health, and lauded regulators for using a reasonable model to conduct the tests.

But the panel, headed by Harvard Law School professor Elizabeth Warren, noted that the stress tests assumed an average unemployment rate of 8.9 percent this year under the worst-case scenario. The unemployment rate for last month, however, climbed to 9.4 percent, meaning the assumptions by regulators might have been too optimistic.Federal Reserve Chairman Ben S. Bernanke, whose agency conducted the stress tests, has previously defended the rigor of those evaluations against criticism from economists and other skeptics, who questioned the underlying assumptions.