The projected loss rates that were chosen varied widely across the different categories (for example the stress-loss rate on Irish commercial development property non-NAMA for Bank of Ireland was 60%; for Irish retail mortgages it was 5.6%), and to a lesser extent across the banks. These were all well above the banks’ own published estimates and far in excess of provisions taken.
The limitations of stress-testing as an exercise across the globe are pretty well appreciated. Both the choice of stress scenarios in terms of macroeconomic and other external factors, and the mapping from those factors to default probabilities and to loss-given-default are always subject to uncertainty. Variances are high. This is all the more so when the economy moves outside of the previously experienced range.