Sheila Bair on how bank stress tests did not include a recession and rising rate scenario

There's been a significant weakening of these stress tests to begin with, but I think most important is that they don't really stress the scenario that I am worried about and a lot of people are worried about, which is that we go into a recession, inflation remains persistent, interest rates keep going higher... that perfect confluence of events that is exactly what happened when Paul Volcker was chair of the Fed.  Actually he had to go through two recessions to get inflation under control, maintain interest rates at very high levels.  That may well be what the Fed needs to happen and that is the extreme stress scenario that they should be preparing for, but that is not the scenario the banks had to show that they should survive and be resilient.

~ Sheila Bair, former FDIC chair, interview with The Claman Countdown, July 6, 2022