To do this, the Fed created hypothetical scenarios that simulate adverse economic conditions, such as high unemployment, falling home prices, and a sharp decline in GDP. The scenarios also incorporate factors such as changes in interest rates, exchange rates, and commodity prices.

Depositor flight to higher-yielding alternatives will continue. And since the bonds bank’s own will be permanently worth less than the deposits they received to buy them, the only way to prevent the inevitable panic is to guarantee all deposits.