Fed's Stress Tests: Biggest US Banks Declared Healthy

Robyn Ryan
June 23, 2017

The Federal Reserve said Thursday that all of the 34 largest USA banks are fortified enough to withstand a severe US and global recession and continue lending.

The first round of the central bank's annual "stress tests" showed that as a group, the 34 big banks have gained strength thanks to a steadily recovering economy.

The 34 largest banks in the USA have money on hand to withstand a severe recession, the U.S. central bank said on Thursday.

The banks have built up deeper cushions against such a downturn since the 2008 financial crisis, and would maintain a 9.2% ratio of capital as a share of assets under such a scenario, the Fed said.

The tests are part of the Dodd-Frank reforms put in place after the recession to protect against another crisis. The Fed compiles its own projections of losses and incomes for each bank.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Federal Reserve Gov. Jerome Powell said in a statement. With the Dodd-Frank results in hand, now banks have the option of revising their capital plans before CCAR is released.

Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations. 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 (CET1) capital ratio assessed past year. The Fed will release those results Wednesday. Analysts had expected United States banks to make a strong showing in this year's test. But the bank can not do so without the Fed's approval.

Banks coming closest to not meeting the minimum capital ratio were Ally Financial, with a tested level of 6.5 percent; Capital One Financial, with 7.0 percent; Huntington Bancshares, 7.0 percent; KeyCorp, 6.8 percent; and SunTrust Banks, 7.1 percent. This year a spotlight was turned on commercial real estate came after some regulators feared the sector was overheating on easy credit from the banks.

Analysts say Citigroup Inc (C.N) has the most to gain or lose in the stress tests. And by subjecting banks to the same model, the regulator might push them into businesses that turn out to be perilous, she said.

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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