Wednesday, 13 December, 2017

All banks pass this year's stress tests

Heartbeat print out Bob Rowan | Getty Images
Jeannie Matthews | 23 June, 2017, 04:50

It was the third consecutive year for the largest US banks to meet the requirements by the Fed in the stress tests. The 34 bank holding companies tested-generally those with $50 billion or more in total consolidated assets-represent more than 75 percent of the assets of all domestic bank holding companies. The Fed compiles its own projections of losses and incomes for each bank.

The finding comes from an annual "stress test" conducted by the Federal Reserve.

Fed officials emphasized that the stress tests don't come with "pass" or "fail" though the results bode well for banks passing the second part of the test next week. Bank executives and many investors hope the Fed will allow lenders to put a lot more capital toward stock buybacks and dividends. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $134.5 billion at March 31, 2017. The worst scenario "features a severe global recession with the US unemployment rate rising by approximately 5.25 percentage points to 10 percent, accompanied by heightened stress in corporate loan markets and commercial real estate", according to the Fed. The tests compare the losses projected for each bank with its capital. 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 previous year.

The Fed can reject a bank's capital plan for either reason.

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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.

However, lenders' aggregate levels of high-quality capital would still cover 9.2 per cent of their risk-weighted assets, which is significantly higher than the 4.5 per cent required by regulators and an improvement on last year's 8.4 per cent.

The 34 largest USA banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday.

The combined loan losses would be $383 billion. Since 2009, the 34 firms have added more than $750 billion in common equity capital.

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