Big Banks Survive Stress Tests


The nation's largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession, according to the results of supervisory stress tests released Thursday by the Federal Reserve Board.

The biggest United States banks' own estimates for loan losses were more optimistic than the Fed's - a trend that has arisen in past years as well.

The tests are part of the Dodd-Frank reforms put in place after the recession to protect against another crisis.

The report said some stress tests should be conducted every two years instead of annually and that they should be limited to the largest banks.

The results of the central bank's so-called stress tests showed 34 major lenders were on solid capital footing, it said.

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

Rob Nichols, president and chief executive officer of the American Bankers Association, said the Fed should consider a number of recommendations recently laid out by the Treasury Department, including making the stress tests more transparent and less frequent. The banks undergoing the seventh annual check-up included JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo and Co. - the four biggest USA banks by assets.

Thursday's results are the first of a two-part exam. "The reason we need to reform ourselves is because we believe in an independent central bank subject to the oversight of Congress and the selection of the president". BB&T said it had a minimum tier 1 common ratio of 10.2 percent in the fourth quarter of 2016 and a 12 percent tier 1 risk-based capital ratio. Even one of the tests' staunch champions, former Fed Governor Daniel Tarullo, said before he stepped down in April that it might be time to ease up on the qualitative side of the test for Wall Street banks, as the Fed already did for mid-size lenders. With $100 billion each, the two categories represent about 52 percent of the total $383 billion in projected loan losses.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Federal Reserve Governor Jerome Powell said in a statement. The Fed has also seen the tactic as a way to poke around bank balance sheets for weak assets. It was the third straight year that the Fed rejected the plan of the USA division of Santander, which is one of Europe's biggest banks, and the second straight rejection for Deutsche Bank Trust Corp., the US transaction bank and wealth management business of Germany's largest bank.

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