This Columbia Law School Blue Sky Blog post advocates for the introduction of a Bayesian model that takes into account prior inputs in bank stress testing. Specifically, the priors would be the previous Federal Reserve adverse scenarios. Failure to consider these prior scenarios could...

In recent years, the question of how to prevent another crippling re-cession has become a prominent one. The answer provided by the Dodd-Frank Act is stress testing, which examines through economic models how banks would react to a bad turn of economic events, such as negative interest rates....