Tomorrow the US government will release the results of its stress tests performed on 19 major US financial institutions. The stress tests judge the financial strength of banks by rating the individual loan quality and toxic assets. The difficulty in valuing troubled assets is that a subjective value has to be placed upon them because no one is sure how much further these assets will decline in value. Mortgage backed securities and derivatives could decline significantly if unemployment continues to rise and housing prices continue to plummet. These tests should help to gauge the cash and liquidity needs for individual institutions.
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