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

Thu Mar 20, 2014 6:55pm 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.

"While capital is certainly better than it has been in past years, these firms certainly are subject to drops in capital and earnings when subject to severe stress," said John Corston, a director in Deloitte's regulatory group.

Several firms appeared to disagree with the Fed's scores. Bank of America (BAC.N: Quote) and Wells Fargo (WFC.N: Quote) released the results of internal stress tests that showed them performing better than they did under the regulators' tests.

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.   Continued...

Zions Bancorp CEO Harris Simmons talks to a reporter at the American Banker Regulatory Symposium in Washington September 20, 2011. REUTERS/Jonathan Ernst