All the major US banks except for Zions Bancorp have passed the Federal Reserve’s annual stress test, which aim to show how banks would weather a financial collapse similar to the 2007-2009 crisis.
Zions Bancorp, a Utah-based lender, failed to maintain a minimum capital ratio of 5% equity to risk-weighted assets.
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The 30 banks tested included Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.
The results showed continued improvement in banks’ financial positions since the 2008 crisis, the Fed said. That built on positive results from last year’s tests.
According to the report, during the nine quarters of the hypothetical stress scenario – which features a deep recession with a sharp rise in the unemployment rate, a drop in equity prices of nearly 50%, and a decline in house prices to levels last seen in 2001–projected loan losses at the 30 bank holding companies would total US$366 billion.
The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.5% in the third quarter of 2013 to the minimum level of 7.6% in the hypothetical stress scenario.
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By GlobalDataThat minimum post-stress number is significantly higher than the 30 firms’ actual tier 1 common ratio of 5.5% measured in the beginning of 2009, the report says.
The tests were used as the basis for the Fed’s assessment of banks’ capital return plans, which will be released next week.
This is the fourth round of stress tests led by the Federal Reserve since the tests in 2009 and is the second year that the Federal Reserve has conducted stress tests pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
