America's biggest banks pass post-crisis stress tests

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Jerome H Powell, a governor of the Federal Reserve who has urged some regulatory reform, said the tests show that "even during a severe recession, our large banks would remain well capitalised".

The results of the stress tests showed that these banks' tier one capital ratio, an important indicator for banks' capital levels, will drop to a minimum level of 9.2 percent in the most severe scenario, well above the minimum requirement set by regulators.

The 34 largest banks in the United States have money on hand to withstand a severe recession, the USA central bank said on Thursday. 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.

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. The Fed compiles its own projections of losses and incomes for each bank.

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.


The results released on Thursday are the first of a two-part exam.

CCAR results will be released on Wednesday, June 28, at 4:30 p.m. EDT.

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. A Republican-sponsored measure would reduce the authority that regulators have and raise the level of assets for which banks would undergo the type of scrutiny that the stress tests employ. Bank of America's calculation was US$12.1 billion less than the Fed's US$45 billion. Bank executives and many investors hope the Fed will allow lenders to put a lot more capital toward stock buybacks and dividends.

A second, more closely watched component is due next week. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank".

It's the third consecutive year there have been no banks failing. It was the third straight year that the Fed rejected the plan of the US division of Santander, which is one of Europe's biggest banks, and the second straight rejection for Deutsche Bank Trust Corp., the USA transaction bank and wealth management business of Germany's largest bank.

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