All US big banks well capitalized, Fed stress tests show

Paterniano Del Favero
Giugno 23, 2017

The Federal Reserve on Thursday released initial results of its yearly stress tests to determine whether the nation's biggest banks are financially strong enough to weather a severe recession.

"I don't think what we are talking about here amounts to deregulation", said Federal Reserve Governor Jerome Powell, the central bank's regulatory point man.

The testimony by the regulators at the five agencies comes less than two weeks after the Trump administration unveiled a 150-page report on how regulators and Congress could address regulations that they claim crimp banks' ability to lend and stifle economic growth. Next week, the Fed will decide whether to approve plans to pay dividends and repurchase shares.

Revising the Fed's annual stress tests is one of more than 100 recommendations the administration has suggested to lessen the burden on banks, including limiting the number of financial firms that must face the exams. The 34 banks represent more than 75 percent of the assets of all USA domestic banks, said the Fed. That was better than last year's results. That is much better than the 4.5 percent threshold that regulators demand, and an improvement on the 8.4 percent common equity tier 1 capital ratio assessed previous year.

According to the stress tests, the 34 largest American banks would incur almost 383 billion US dollars in loan losses during the most severe scenario where the unemployment rate will rise to 10 percent and a severe global recession will accompany with heightened stress in corporate loan markets and commercial real estate.

However, even with the losses in that scenario, the banks' aggregate level of high-quality capital would still cover 9.2 percent of their risk-weighted assets, according to the Fed. The Fed says it was the first time that the tests showed credit card lending as the biggest loss category.

We also caution that the amount and timing of any future common stock dividends or stock repurchases will depend on our financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of our subsidiaries), and any other factors that our Board of Directors deems relevant in making such a determination.

In last year's second round, the Fed barred USA businesses of two European banks, Germany's Deutsche Bank and Spain's Santander, from raising dividends or boosting stock buybacks. Banks now have an opportunity to resubmit those plans if they find their own projections were much sunnier than the Fed's. "They can't borrow money". The regulators said that, although there have been improvements, the banks continue to show weaknesses in supervision that could harm their capital planning. They are: Ally Financial, American Express, BancWest, Bank of America, Bank of New York Mellon, BB&T, BBVA Compass, BMO Financial, Capital One, Citigroup, Citizens Financial, Comerica, Deutsche Bank, Discover, Fifth Third, Goldman Sachs, HSBC, Huntington Bancshares, JPMorgan, KeyCorp, M&T, Morgan Stanley, MUFG Americas Holdings, Northern Trust, PNC, Regions Financial, Santander Holdings, State Street, SunTrust, TD Group, U.S. Bancorp, Wells Fargo and Zions Bancorp.

The Fed has changed the emphasis in stress scenarios from year-to-year to keep banks from managing their portfolios to the test.

FILE - This Monday, July 18, 2016, file photo shows the top of a Bank of America ATM booth, in Woburn, Mass.

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