The Board of Governors of the Federal Reserve System (Fed) has officially announced amendments to the framework for designing scenarios for financial sector stress tests, to which bitcoin could also be added.
In the document they say:
“The commenter 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“.
Basically, it would have been suggested to include a possible collapse of the bitcoin market among the risks to be taken into account when supervisors perform so-called stress tests.
These are theoretical tests carried out on the American financial system simulating serious problems such as a war against North Korea or other major events that could put the financial system in crisis.
According to the Board of Governors’ document, one commentator proposed the collapse of the value of bitcoin as one of these “extraordinary shocks” to be used to perform stress tests.
In the same document, the Fed states that it aims to make these tests more dynamic, including within the framework of possible scenarios the new risks that have become relevant in the market.
For example, recently it had already added sharp oil price movements and a severe recession in the euro area: from this point of view, the commentator’s proposal to add a hypothetical collapse in the value of bitcoin seems to make sense.
The amendments described in the document will enter into force on April 1st, with the exception of the amendment concerning bitcoin, which at present is not an amendment but only a proposal launched by a commentator.
However, it is likely that other amendments not mentioned in the current document will also be included in the future, such as a change in the unemployment rate of less than 4% under certain economic conditions, or a decrease in the house price index.
According to the Fed, stress tests are used to provide companies, boards, the public and supervisors with forward-looking information to assess the potential effect of stressful conditions on the ability of organisations to absorb losses while meeting their obligations to creditors and other counterparties.