Fed: Biggest US banks strong enough to withstand recession
04:43, Jun 23, 2017
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The Fed was yesterday also scheduled to publish the results of annual stress tests for major banks, which are called for under Dodd-Frank and meant to make sure lenders are on solid capital footing in the event of a crisis.
Although the banks, including household names like JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N), would suffer $383 billion (£302 billion) in loan losses in the Fed's most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year's level.
BB&T Corp. projected Thursday it would experience an overall $2.6 billion revenue loss if the US economy were to go through a severe downturn during a 2½-year period ending March 31, 2019. 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.
This is the seventh round of stress tests led by the Federal Reserve since 2009 and the fifth round required by the Dodd-Frank Act.
In testimony to be delivered Thursday, Federal Reserve Governor Jerome Powell said some reasonable reforms could be in order.
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.
US banks passed the first round of stress tests issued by the Federal Reserve to determine whether the banks could survive potential recessions, according to CNBC.
Next Wednesday, investors will watch as the Fed announces the results of the Comprehensive Capital Analysis and Review, which determines how much money Wall Street banks can devote to dividends and stock buybacks during the next year. Shareholders of the fourth-largest US bank have been clamouring for management to buy back more of its stock, which is trading below what its assets are worth.
The Fed has changed the emphasis in stress scenarios from year-to-year to keep banks from managing their portfolios to the test. Stress tests are simulations regulators run to gauge a bank's ability to weather a downturn.
The second phase is an annual Fed exercise that evaluates the banks' capital planning processes and capital adequacy.
Seeking to provide some regulatory relief to community banks and other small financial institutions, bank regulators on Thursday asked Congress to consider several changes to the 2010 Dodd-Frank financial reform laws.
The bank said it would have a minimum Tier 1 common ratio of 7.9 percent and a minimum Tier 1 risk-based capital ratio of 9.6 percent. The president also will be able to appoint a new Fed chair when Janet Yellen's term expires in February.
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