The three largest banks in the country have sufficient capital to weather a catastrophic economic downturn.
The 33 largest banks in the country have enough capital, according to the Federal Reserve, to weather a catastrophic economic downturn. NEW YORK (AP)
The Fed created a scenario where the country’s unemployment rate would more than double to 10% and a catastrophic decline in commercial real estate and stock market prices would result in losses of more than $600 billion in its most recent annual “stress tests” of the U.S. financial system.
The 33 largest banks would nonetheless, on average, have a capital ratio of 9.7%, much above the 4.5% mandated by law, the Fed stated, even with those variables. A bank’s capital ratios are an industry indicator of how well-protected it is against unforeseen losses.
Since they were put in place following the Great Recession and the 2008 financial crisis, the “stress tests” have evolved into an annual report card for the country’s financial system. Before beginning to distribute dividends to shareholders and repurchase shares, the largest banks must pass these annual tests. On Monday, banks will reveal their plans for dividends and share buybacks.
One bank, the Japanese bank MUFG, which is selling up its U.S. retail banking business and would not be subject to tests once that deal is finalized, was not included in the individual results even though 34 institutions were tested as part of the Fed’s overall investigation. 33 banks were evaluated individually to determine whether they would have adequate capital, and every single one of them passed.
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