All big U.S. banks but one pass Fed's health test

Thu Mar 20, 2014 4:04pm EDT
 
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By Emily Stephenson

WASHINGTON (Reuters) - U.S. big banks have enough capital buffers to withstand a drastic economic downturn, the Federal Reserve said on Thursday, announcing that 29 out of 30 major banks met the minimum hurdle in its annual health check.

All of the big banks except for Zions Bancorp (ZION.O: Quote) stayed above the 5 percent requirement for top-tier capital in the latest round of stress tests.

The tests aim to show how banks would weather a financial collapse similar to the 2007-2009 crisis. Banks had to show how they would cope with a halving of the stock market, and the eight largest banks had to weigh the impact of the default of their biggest trading counterparty.

"The annual stress test is one of the Federal Reserve's most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions," Fed Governor Daniel Tarullo said in a statement.

Stress tests are closely watched by financial markets as a sign of the industry's health, and also because the Fed can reject banks' plans to return capital to shareholders if they think the banks are not strong enough to carry them out.

European regulators plan to conduct their own stress tests later this year, following a broad review of the asset quality of banks on the continent.

The Fed will announce on March 26 which banks' plans to pay dividends or buy back shares were approved.

For the results announced on Thursday, the Fed assumed banks would keep dividends at their current levels and buy back no shares. Regulators tested three different scenarios, the toughest of which assumes stock prices would be cut in half and home prices would plummet.   Continued...

 
The sun rises to the east of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst