Bank stress tests results

We have all heard about the headline numbers of additional capital required for 10 of the 19 bank holding companies. It is important to understand the basic assumptions and the evaluation process to get some perspectives on these numbers; the $75 billion additional capital required, the potential additional loss of $600 billion till end of 2010.

Assumptions
I am a little bit surprised that the conditions of the stress tests were not clearly listed together in headlines with the results. The macroeconomic scenarios (considered to be worse than expected) used for the stress tests were:

• Unemployment: 8.9% in 2009 and 10.3% in 2010
• GDP: -3.3% in 2009 and 0.5% in 2010
• House Price: -22% in 2009 and -7% in 2010

With these macroeconomics scenarios, the loss rates of the 12 categories of loans were projected.

Process and Methodology
With the above mentioned assumptions, each bank used its own risk models and calculated its potential lose. The same were done to project revenue, profits and cash flows to determine available capital. The 180 people federal team then audited each bank's models and results, and requested additional data for clarity. An important observation that I had - the final published results of some banks differed drastically from just 2 weeks ago. This showed how uncertain these "estimates" were.

I also read in an article that trading exposure of only 5 banks were included in the stress tests. $100 billion of trading assets seemed to be the threshold.

Questions
I only spent a couple of hours following the news on the stress test results. I am interested to know some basics of "how" these numbers were established. If I have a real need to know (which I don't now), I could drill down and analyze more on the followings.

• Are the worst case scenarios really bad enough? A peak unemployment of 10.3% and GDP growth of 0.5% in 2010 does not seem like extreme dire scenario now. April 2009 unemployment rate already equaled the more adverse scenario in 2009 in the stress test.
  
• How was the potential loss of each loan category for each bank estimated and approved by the federal team? This is the heart of the problem, how much of different assets have in each bank's book and how to value them.
• I am also assuming the stress tests did not include any future trading risk of the 5 companies. The potential loss was all based on their existing exposure. Each company can and will change their strategy in the future. Also, is it true that only trading exposure of banks of $100 billion trading assets were included? What if a bank had $80 billion of trading assets and the bank (hypothetically) lose them all next year, that risk were not considered in the stress tests? I must be wrong here.
  
• What assumptions were used to evaluate the revenue, market share, profitability and growth of each company? If we look back to the last few quarters, there were way too much surprises in the sector.