Fed: Large Banks Would Remain Well-Capitalized Under Severe Stress
- Author: Ronnie Bowen Jun 23, 2017,
Jun 23, 2017, 4:41
The banks were tested to determine if they have large enough capital buffers to keep lending, even if hit with billions of dollars in losses brought on by a financial crisis and severe economic downturn.
"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Governor Jerome H. Powell said. "This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough".
The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy.
America's biggest banks breezed through the first phase of the annual test. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said.
All the banks can now amend their plans on dividend payments and stock buybacks to win Fed approval before it announces its decisions on those issues next Wednesday.
The Treasury plan is part of a broader effort by Republican President Donald Trump to cut regulations that he says are holding back economic growth.
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"From this solid foundation, the focus should now turn to what can be done to help USA banks promote economic growth even further". Before Thursday's results, analysts predicted banks would be able to return more than US$120 billion to shareholders over the next four quarters, or about 85 percent of their profit.
For the third year in a row, all the banks maintained capital levels above the minimum the Fed requires.
US financial regulators and lawmakers who appeared at a congressional hearing on Thursday generally agreed that the Volcker rule, which restricts banks' ability to make bets with their own money, needs to be reconsidered. Fed officials will decide next week whether to approve banks' plans to pay dividends and repurchase shares.
The US Federal Reserve is open to easing some banking regulations put in place after the 2008 financial crisis, including stress tests and the so-called Volcker Rule, according to a central bank governor. The Fed said the losses would reduce the banks' high-quality capital from 12.5 percent of its loans in the fourth quarter a year ago to 9.2 percent at the end of 2017.
The firms reviewed included Bank of America, JP Morgan Chase and Wells Fargo. The banks undergoing the seventh annual check-up included JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo and Co. - the four biggest USA banks by assets.
Under the Fed's examination, Citi's minimum CET1 ratio in the most stressful scenario was the highest among big Wall Street banks, at 9.7 percent.