All 31 US banks passed a test of how they would do in an economic crisis, the US Federal Reserve said on Thursday, but those with large trading books came out weaker because of new elements in the check-up.
The Fed had assumed a surge in corporate defaults in the toughest hypothetical scenario to test banks’ resilience, which it said hit banks with large capital market activities.
All 31 banks tested stayed above the 5 percent minimum for top-tier capital.
However, Wall Street banks such as Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co were among the five banks with the lowest readings.
The results come ahead of the publication of the second stage of the so-called stress tests next week, in which the Fed is to say whether banks can go ahead with planned increases in shareholder payouts such as dividends.
In that second stage of the exercise, the Fed uses qualitative criteria to assess how well banks manage their risk. The US units of Deutsche Bank AG and Banco Santander SA are expected to fail at that stage.
Zions Bancorp had the lowest reading, coming in at 5.1 percent in the simulation, which included a 25 percent drop in home prices and a stock market drop of nearly 60 percent.
Last year, the bank fell just short of the 5 percent mark.
Next week’s review takes a look under the hood of the banks, which Wall Street critics have said are “too large to manage,” by scrutinizing whether managers are in truly in control of their firms, and the test is becoming tougher each year.
Global regulators have forced banks to borrow less to fund their business after the crisis, and the stress tests are increasingly becoming an important instrument for the Fed to test the industry’s resilience.
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