Fed: Biggest US banks strong enough to withstand recession

Morgan Stanley Barclays Goldman Sachs JPMorgan Credit Suisse Citigroup and Bank of A
Morgan Stanley Barclays Goldman Sachs JPMorgan Credit Suisse Citigroup and Bank of A
Author

23 June, 2017

Under the Fed's worst-case stress test scenario, the US unemployment rate more than doubles to 10 percent.

Thirty-four of the largest banks operating in the United States cleared a Federal Reserve stress test of their ability to withstand economic shocks, showing firms are getting the hang of the once-dreaded reviews - a trend that may continue if the Trump administration dials them back.

The tests were put in place after the financial crisis to strengthen financial capacity in the event of a downturn. The measures signal economic health but are only the first in a two-step process. The Fed will release those results Wednesday. Fed officials will decide next week whether to approve banks' plans to pay dividends and repurchase shares.

The results signal that many banks.

"Today's results reaffirm that U.S. banks are strong and remain well positioned to continue playing their important role in accelerating economic growth", the group said.

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

Capital is critical to banking organizations, the financial system, and the economy because it acts as a cushion to absorb losses and helps to ensure that losses are borne by shareholders. Bank of America's calculation was US$12.1 billion less than the Fed's US$45 billion. Bank dividends hit $102.8 billion in 2016, according to the FDIC.

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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 tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a U.S. unit of the troubled German financial giant.

The projected losses and net charge-offs would be spread across several loan categories, including $1.5 billion in commercial real estate, $1.4 billion in other consumer loans, and $900 million in commercial and real-estate loans.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Fed Governor Jerome Powell said in a statement.

The financial industry, and mid-size banks in particular, have complained of the burden the new regulations place on lenders.

Mr. Warsh also hinted that the Fed could eventually be at risk of being dismantled if it doesn't make needed changes from within.


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