Current Weather
The Spy FM

Federal Reserve Says Most Major U.S. Banks Would Survive Severe Recession

Filed by KOSU News in Business.
March 13, 2012

Update at 4:34 p.m. ET. 15 of 19 Banks Pass Stress Test:

The Federal Reserve says 15 of the country’s top 19 banks have enough capital to survive a “severe recession,” which it defined as “peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices.”

Reuters reports:

“The regulator said Citigroup, Ally Financial and SunTrust banks fared worst under the supervisory stress ratios, with Tier 1 common capital ratios of 4.9 percent, 4.4 percent, and 4.8 percent, respectively.

“The bank holding companies that came out top were Bank of New York Mellon with a Tier 1 common capital ratio of 13.1 percent under the hypothetical financial shock, State Street Corp with 12.5 percent and American Express with 10.8 percent. Bank of America came in with 6.2 percent, and JPMorgan’s result was 5.9 percent.”

The full report is here.

Update at 4:46 p.m. ET. Citigroup, SunTrust Banks Fail:

Citigroup, the country’s third-largest bank “failed to meet the Federal Reserve’s minimum requirements in a stress test when examiners considered the effects of the bank’s plan for managing capital,” reports Bloomberg.

Sun Trust Bank and Ally Bank also failed to meet minimum requirements.

Here’s the important table from the report. The first column is the stressed ratios without any of the hypothetical “capital actions.” The second column shows the ratios after those actions are taken into account:

Bloomberg reports the Fed wanted a minimum 5.0 percent Tier 1 common capital ratio to pass the test.

Our Original Post Continues:

With the results of stress tests of major banks already leaked, the Federal Reserve said it would release full results a bit after the markets close today. The Fed had originally said it would release them Thursday.

Using what Bloomberg calls expanded supervisory powers, the Federal Reserve put nation’s 19 largest banks through what it called a “Comprehensive Capital Analysis and Review.” Essentially, the Fed is trying to see if the banks have enough capital to survive a “severe recession,” which they defined as “peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices.”

So what do we know so far?

– Forbes reports that JPMorgan Chase passed the stress test and “will up its quarterly dividend to 30 cents per share, from 25 cents. The bank’s board also authorized a new $15 billion stock repurchase program, $12 billion of which is approved for 2012 with the remainder available for the first quarter of 2013.”

– The Wall Street Journal reports Bank of America also passed its stress test.

– The news — along with the Fed’s earlier statement the economy would continue moderately improving in the coming quarters — sent the markets sharply higher today. Here’s the AP with preliminary numbers:

“Preliminary results show the Dow Jones industrial average closing up 220 points at 13,179. That’s the highest close since the last day of 2007. The Nasdaq composite index is closing above 3,000 for the first time since December 2000.”

[Copyright 2012 National Public Radio]

Leave a Reply

11PM to 5AM The Spy

The Spy

An eclectic mix of the Spy's library of more than 10,000 songs curated by Ferris O'Brien.

Listen Live Now!

5AM to 6AM The Splendid Table

The Splendid Table

Hosted by award-winning Lynne Rossetto Kasper, The Splendid Table is a culinary, culture and lifestyle program that celebrates food and its ability to touch the lives and feed the souls of everyone.

View the program guide!

6AM to 7AM Travel with Rick Steves

Travel with Rick Steves

"Travel with Rick Steves" is a fun, hour-long, and practical talk show with guest experts and calls and questions from travelers. This weekly program is a lively conversation between travelers and the experts as we learn to explore our world smartly, smoothly, and thoughtfully.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center