Article

2014-03-23 Economy

29 of 30 U.S. Big Banks Pass Stress Tests

[AnNahar] All but one of the 30 largest banks are now strong enough to weather another severe economic crash, the Federal Reserve said Thursday.

In the newest of the series of health examinations mandated after the 2008 financial crisis, only Zions Bancorp could not measure up to a basic capital standard in a theoretical drastic meltdown of the economy.

Twenty-nine bank holding companies held up in the worst-case scenario with a cumulative 7.8 percent Tier 1 common ratio, a basic measure of capital strength, down from 11.5 percent at the end of the third quarter last year, but ending well above the 5.0 percent minimum target.

That represented a steady strengthening of the sector since the tests began three years ago,

Salt Lake City, Utah-based Zions Bancorp was the only one which fell below the threshold, finishing the nine months of the theoretical meltdown period with just a 3.5 percent Tier 1 common ratio -- the level of shareholder equity and reserves.

The banks were measured against a situation when real gross domestic product contracts 4.75 percent, the unemployment rate hits 11.25 percent, equities shed half their value and home prices lose a quarter of their value.

In that scenario, banks saw $501 billion in losses over nine months.

"The severely adverse scenario features a deep recession in the United States, Europe, and Japan, significant declines in asset prices and increases in risk premia, and a marked economic slowdown in developing Asia," the Fed report said.

The scenario also included for the eight largest banks a default by their own largest counterparty.

The banks that held up the best included American Express, Bank of New York Mellon, Fifth Third Bank, Northern Trust and State Street. All ended the tests with core capital far above the industry average.

Frank Keating, president of the American Bankers Association, said the tests showed that banks continue to strengthen.

"Regulators threw every economic calamity they could think of at our nation's largest banks, and these institutions once again proved their ability to handle even the most extreme financial distress," he said in a statement.

Except for the unknown unknowns that define a black swan event...

You wonder if any of them have read Nate Silver's book...

Posted by trailing wife 2014-03-23 00:00|| || Front Page|| [11128 views ] Top

#1 The banks were measured against a situation when real gross domestic product contracts 4.75 percent, the unemployment rate hits 11.25 percent, equities shed half their value and home prices lose a quarter of their value.

Given the govt has already been caught cooking the books on stats, why do they assume those values are any indicator of a 'crisis' (vs what is happening right now?). Thus, why does it constitute a 'stress' test?

Posted by Procopius2k 2014-03-23 08:03|| 2014-03-23 08:03|| Front Page Top

#2 The banks were essentially the first to be compromised. Then came GM, the insurance companies, and big pharma. Wall Street investments are the final target, the end game.

Posted by Besoeker 2014-03-23 08:08|| 2014-03-23 08:08|| Front Page Top

#3 Well then... Interest rates can go back to 6%.

Posted by Bright Pebbles 2014-03-23 09:34|| 2014-03-23 09:34|| Front Page Top

#4 What is unpredictable is the givernments reaction to next inevitable fiscal crisis.

Posted by Airandee 2014-03-23 15:39|| 2014-03-23 15:39|| Front Page Top

#5 It's predictable - cover the a$$et$ of their fellow oligarchs and campaign contributors.

Posted by Procopius2k 2014-03-23 15:46|| 2014-03-23 15:46|| Front Page Top

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