Fed: Biggest US banks strong enough to withstand recession

Morgan Stanley Barclays Goldman Sachs JPMorgan Credit Suisse Citigroup and Bank of A

The Federal Reserve said Thursday that all of the 34 largest USA banks are fortified enough to withstand a severe US and global recession and continue lending.

"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 announcing the central bank's findings Thursday.

Trump has promised to undo various restrictions on financial firms that were put into place after the 2008 financial crisis, including the 2010 Dodd-Frank Act. The Federal Reserve uses its own independent projections of losses and incomes for each firm.

America's big banks are a step closer to paying billions of dollars to shareholders after the Federal Reserve determined that their cash reserves were large enough to withstand a severe shock to the USA economy.

Thursday's results are the first of a two-part exam.

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Revising the Fed's annual stress tests is one of more than 100 recommendations the Treasury Department has suggested to lessen the burden on banks, including limiting the number of financial firms that must face the exams.

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. 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 a year ago. The Fed will release those results Wednesday. Bank of America's calculation was US$12.1 billion less than the Fed's US$45 billion. That phase is closely watched by shareholders because it dictates whether lenders can increase dividends and buy back stock. It was the third straight year that the Fed rejected the plan of the US division of Santander, which is one of Europe's biggest banks, and the second straight rejection for Deutsche Bank Trust Corp., the USA transaction bank and wealth management business of Germany's largest bank. This year a spotlight was turned on commercial real estate came after some regulators feared the sector was overheating on easy credit from the banks.

But for the most part, the stress tests have been getting less stressful. "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".

"If the Fed bets wrong and treats one particular trading strategy as low risk and it's high risk, all the banks will have taken that low-risk bet and it will have turned out very badly", she said.

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