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.
"Today's results reaffirm that US banks are strong and remain well positioned to continue playing their important role in accelerating economic growth", said ABA President and CEO Rob Nichols. 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.
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. "This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough". 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.
USA unemployment would rise to 10 per cent, accompanied by a 35 per cent drop in commercial real estate prices and pressures on corporate loan markets as well.
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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. That's when the Fed will announce whether it has approved banks' requests to increase dividends or buy back shares.
Although the banks, including household names like JPMorgan Chase & Co and Bank of America Corp, would suffer $383 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.
The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a USA unit of the troubled German financial giant.
A Fed official said Thursday that the results show the industry is well-capitalized and credited the reforms with boosting lending for banks. This was the first year that all the country's big banks passed since the recession. And by subjecting banks to the same model, the regulator might push them into businesses that turn out to be perilous, she said. Bank of America's was 0.7 of a point worse.
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