All of the banks tested by the Federal Reserve met the regulatory minimums for capital after being tested for the impact of a severe recession, the central bank announced Thursday.
The Fed said banks met the minimums after a “severely adverse” stress test that would cause $578 billion in losses for 35 lenders.
The Fed said the aggregate common equity tier 1 capital ratio would fall from an actual level of 12.3% in the fourth quarter of 2017 to 7.9% under the stress-test scenario. That is lower than how banks would fare under last year’s stress test, where their aggregate common equity tier 1 capital ratio was 9.2%.
The Fed said the results still point to a well-capitalized banking sector.
“Despite a tough scenario and other factors that affected this year’s test, the capital levels of the firms after the hypothetical severe global recession are higher than the actual capital levels of large banks in the years leading up to the most recent recession,” Vice Chairman for Supervision Randal Quarles said in a statement.
The Fed said several factors impacted the post-stress capital ratios, including rising credit-card balances as well as the recent changes to the tax that resulted in one-time declines to their starting capital ratios, and the elimination of beneficial tax treatments that tended to raise post-tax income in times of stress.
The bank with the highest level of capital was the U.S. unit of Credit Suisse
CS, -1.18%
, with a common equity tier 1 ratio of 17.6%, and Deutsche Bank USA
DB, -1.71%
was 12.2%. State Street
STT, +0.47%
had the lowest at 5.3%, with Goldman Sachs Group
GS, -0.37%
at 5.6%. The minimum level is 4.5%.
Another measure called the supplementary leverage ratio has a minimum of 3%, and both Goldman Sachs and Morgan Stanley
MS, -0.20%
had results in the low 3% range.
That is just the first round of the stress tests, as the results of the Comprehensive Capital Analysis and Review are announced next week. It’s only then that bank shareholders will know how much in dividends and buybacks they can receive.
The Fed did not report the results from banks with less than $100 billion in assets — CIT Group Inc.
CIT, -0.84%
, Comerica Inc.
CMA, +0.49%
, and Zions Bancorporation
ZION, +0.61%
— because of the recently passed bank reform law known as the Economic Growth, Regulatory Reform, and Consumer Protection Act.
Source : MTV
