Via Calculated Risk, the FDIC's Supervisory Capital Assessment Program has published its stress-test scenarios. Ew: the average baseline shows a 2.0% decline in GDP this year followed by a 2.1% increase in 2010, as well as an "alternative more adverse" projection of -3.3% in 2009 and +0.5% in 2010. They forecast house prices to decline by -18% (baseline) to -29% (alternative) through 2010, with rises in unemployment to 8.8% (baseline) up to 10.3% (alternative).
Now, imagine you're a bank with $100 billion in mortgage assets at face value against $90 billion in liabilities. (Shudder.)
Meanwhile, Ben Bernanke told Congress today that nationalization is not an option.
I'll bet you 100 shares of Citicorp that it is.
Update: Krugman says the Fed's "worst case" isn't nearly as bad as it should be. (Insert nervous laughter here.)