Function 8 · treasury and stress testing · the Federal Reserve's 2026 scenarios

What does a rate move do to earnings, what would a severe recession do to losses and capital, and how long would liquid assets last?

Over twelve months the balance sheet is close to neutral: a two point rise changes net interest income by -$6,981 and a two point fall by -$175,123, against $54.7M earned over the last year. Along the Federal Reserve's severely adverse scenario, unemployment at the bank peaks at 10.5 and nine quarters of losses come to $59.8M ($55.9M to $63.9M), which pre provision revenue absorbs. These are illustrative projections on a fictional bank in the shape of the supervisory exercise, not the exercise.

Net interest income, +200 bp

-$6,981

0.0% of the last twelve months

Net interest income, -200 bp

-$175,123

-0.3% of the last twelve months

Severely adverse losses, nine quarters

$59.8M

8.3% of loans

Liquidity coverage, simplified

378%

180% if the top 1% of depositors leave

Net interest income over twelve months, parallel rate shocks

Against $54.7M of net interest income over the last twelve months, a 200 basis point rise changes it by -$6,981 and a 200 basis point fall by -$175,123. The balance sheet is close to neutral: what the assets gain from a rise, the deposits give back, because savings pass on a large share of any move and most certificates reprice within the year. The fall costs more than the rise earns because checking is already at its floor and cannot follow rates down. Balances are held flat and customer behaviour does not change with the shock.

Source: generated, Harborline's balance sheet as of 2026-08, seed 20260831, as of 2026-08-31.

What reprices within the year

Position	Balance	Repricing weight in twelve months	Beta	Change at +200 bp	Change at -200 bp
Cash	$31.0M	100.0%	1.00	$620,169	-$620,169
Securities	$296.4M	9.2%	1.00	$543,380	-$543,380
Card loans	$49.3M	100.0%	1.00	$986,502	-$986,502
Installment loans	$152.1M	20.7%	1.00	$629,962	-$629,962
Mortgages	$518.5M	12.0%	1.00	$1,249,071	-$1,249,071
Checking	$455.7M	100.0%	0.02	-$182,104	$0
Savings	$347.3M	100.0%	0.38	-$2,639,494	$2,639,494
Time deposits	$127.6M	66.1%	0.72	-$1,214,467	$1,214,467

Deposit betas come from the deposits function. Installment loans and mortgages reprice only as they run off (45.2% and 26.3% of the book over the last year), securities are taken as an even 5.0 year ladder, and 86.0% of certificates mature within the year.

Unsecured loans rolling into delinquency each quarter, along the 2026 scenarios

Under the severely adverse scenario, the bank's unemployment peaks at 10.5 and the quarterly roll into delinquency rises with it; the band is the link's uncertainty. These are illustrative projections on a fictional bank in the shape of the supervisory exercise, not the exercise.

Source: real:frb_scenarios, The Federal Reserve Board's 2026 supervisory scenarios, applied to Harborline, as of 2026-08-31.

The capital ratio along each scenario

The ratio starts at 19.8%. Severely adverse losses peak at $8.6M a quarter, while pre provision revenue, held at its last twelve months of $8.2M a quarter and moved by the scenario's short rate, falls no lower than $7.7M, so the ratio ends the 9 quarters at 21.7% and never falls below where it started. No tax, dividends or balance sheet growth; illustrative projections on a fictional bank in the shape of the supervisory exercise, not the exercise.

Source: real:frb_scenarios, The Federal Reserve Board's 2026 supervisory scenarios, applied to Harborline, as of 2026-08-31.

The two scenarios over 9 quarters

Scenario	Peak unemployment, bank	Losses over 9 quarters	Low	High	Share of loans	Capital ratio at its lowest	Low	Capital ratio after 9 quarters
Baseline	5.1	$27.2M	$27.2M	$27.2M	3.8%	19.8%	19.8%	28.8%
Severely adverse	10.5	$59.8M	$55.9M	$63.9M	8.3%	19.8%	19.8%	21.7%

Source: real:frb_scenarios, The Federal Reserve Board's 2026 supervisory scenarios, applied to Harborline, as of 2026-08-31.

The macro link, and whether it recovers the generator

Term	Coefficient	Low	High
Intercept	-4.782	-4.847	-4.718
Unemployment, per point above four	0.215	0.186	0.244
House price growth, per point a year	-0.008	-0.016	0.000
The loose underwriting vintages	0.439	0.385	0.493
Card rather than installment	0.877	0.827	0.927
Six to eleven months on book	0.417	0.355	0.480
Twelve to twenty three months on book	0.236	0.173	0.299
Two years or more on book	-0.067	-0.129	-0.005

Fitted on 675,353 loan months with 13,353 rolls into delinquency. The generator's stated sensitivity is 0.30 per point of unemployment; the link recovers 0.215 (0.186 to 0.244), within the stated tolerance of 0.10 but attenuated, because a bank never sees the latent risk score the generator uses. House prices carry no weight in the generator, and the fit gives them almost none.

Liquidity coverage, simplified

Line	Amount
Cash	$31.0M
Securities, after the haircut	$296.4M
High quality liquid assets	$327.4M
Checking outflow at 10%	$45.6M
Savings outflow at 10%	$34.7M
Time deposit outflow at 5%	$6.4M
Thirty day net outflows	$86.7M
If the largest 1% of depositors also leave in full	$182.0M

High quality liquid assets over thirty day outflows at the stated run rates: 378%. If the largest one percent of depositors, who hold $105.9M, also left in full, 180%. Not the regulatory ratio: no inflows, no level two haircuts, no committed lines.

Method and limitations

The balance sheet is held flat and customers do not change behaviour with rates. Real deposit outflows and prepayments move with a shock, and economic value of equity is not measured here.
The link is fitted on 675,353 loan months from a three year history with one recession quarter. It is short, and the generator's macro sensitivity is a stated parameter the fit had to recover before any scenario was projected.
The scenarios are the Federal Reserve's, applied as changes from their jump off quarter to the bank's own starting unemployment. Mortgage losses are held at their last year's rate; no tax, dividends or growth are modelled.