All US big banks well capitalized, Fed stress tests show

Jerome Powell delivers remarks during a conference at the Brookings Institution in Washingt

WASHINGTON-The largest USA banks survived a hypothetical "stress test" and could continue lending even during a deep recession, the Federal Reserve said Thursday, a strong report card that could bolster the industry's case for cutting back regulation.

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.

"This year's results show that, even during a severe recession, our large banks would remain well capitalised", Fed Governor Jerome Powell said in a statement.

Key's Company-run stress test results are not necessarily indicative of Key's performance as part of CCAR, and no positive or negative inference about Key's CCAR results (including any potential capital actions) should be drawn from these Company-run stress test results. The worst scenario "features a severe global recession with the USA 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 ratio of capital, which allows lenders to absorb losses, to risk-weighted assets would drop from 12.5 per cent to 9.2 per cent. The Federal Reserve plans to publicly release the results of CCAR on Wednesday, June 28, 2017.

The results are the first since Republican President Donald Trump took office and called for a relaxation of capital regulations to encourage banks to lend more.

In last year's second round, the Fed barred US businesses of two European banks, Germany's Deutsche Bank and Spain's Santander, from raising dividends or boosting stock buybacks.

Citigroup Inc fared the best among big Wall Street banks, with a ratio of 9.7 percent. That phase is closely watched by shareholders because it dictates whether lenders can increase dividends and buy back stock.

"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. It's far above the 4.5 percent minimum capital level and the 5.5 percent that the banks held at the start of 2009, soon after the crisis hit, the year the first stress tests were performed. They then ask what that would do to a bank's balance sheet.

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