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Fed: Large Banks Would Remain Well-Capitalized Under Severe Stress

Fed: Large Banks Would Remain Well-Capitalized Under Severe Stress”

The Federal Reserve is releasing the first part of its annual stress tests for big banks today.

The banks were tested to determine if they have large enough capital buffers to keep lending, even if hit with billions of dollars in losses brought on by a financial crisis and severe economic downturn.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Fed Governor Jerome Powell said in a statement. That is much better than the 4.5 percent threshold that regulators demand, and an improvement on the 8.4 percent common equity tier 1 capital ratio assessed past year.

The regulators, which include the Federal Reserve and Federal Deposit Insurance Corp., sent dozens of pages of testimony to lawmakers ahead of a Senate Banking Committee hearing Thursday on how to improve economic growth by loosening regulations on smaller-sized banks. Analysts had expected USA banks to make a strong showing in this year's test.

"Today's results reaffirm that US banks are strong and remain well positioned to continue playing their important role in accelerating economic growth", said ABA President and CEO Rob Nichols.

The results are the first since Republican President Donald Trump took office and called for a relaxation of capital regulations to encourage banks to lend more. 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 US banks by assets.

All the banks can now amend their plans on dividend payments and stock buybacks to win Fed approval before it announces its decisions on those issues next Wednesday.

Citigroup Inc (C.N) fared the best among big Wall Street banks, with a ratio of 9.7 percent.

USA banks passed the first round of stress tests issued by the Federal Reserve to determine whether the banks could survive potential recessions, according to CNBC. Before Thursday's results, analysts predicted banks would be able to return more than US$120 billion to shareholders over the next four quarters, or about 85 percent of their profit.

Mr. Warsh also hinted that the Fed could eventually be at risk of being dismantled if it doesn't make needed changes from within.

The financial industry, and mid-size banks in particular, have complained of the burden the new regulations place on lenders. It showed whether the banks would meet minimum requirements under the Fed's methodology, using materials they submitted. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank".

CIT was added this year to the banks tested by the Fed.



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