All banks pass this year's stress tests

Posted June 23, 2017

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.

Fed Governor Powell said recently that regulators will share more information with the industry during next year's exams after bankers complained the process was too opaque. The Fed said the losses would reduce the banks' high-quality capital from 12.5 percent of its loans in the fourth quarter previous year to 9.2 percent at the end of 2017.

Thursday's announcement covered what's known as the Dodd-Frank Act Stress Test, which measures banks' capital under stress over nine quarters. The Federal Reserve uses its own independent projections of losses and incomes for each firm.

The test applies to more than 30 of the biggest banks in the country, and aims to ensure that banks have enough cash reserves to withstand a severe global recession like the 2008 financial crisis.

Banks will get the chance to revise their capital plans before next week's results are released.

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She's the associate attorney general, which makes her third in command at the Justice Department behind Rosenstein and Sessions. The official demanded anonymity because the official was not authorized to be named discussing the deliberations.

Other banks serving the Triad required to conduct the stress test are Bank of America Corp., Fifth Third Bancorp, PNC Financial Services Group Inc., SunTrust Banks Inc. and Wells Fargo & Co.

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. 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 a year ago.

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. Bank of America's calculation was US$12.1 billion less than the Fed's US$45 billion.

A second, more closely watched component is due next week. They then ask what that would do to a bank's balance sheet. 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.

"If the Fed bets wrong and treats one particular trading strategy as low risk and it's high risk, all the banks will have taken that low-risk bet and it will have turned out very badly", she said.