Banks Pass Federal Reserve Stress Tests

Blog posted On June 27, 2017

Last week, the Federal Reserve conducted the annual stress test of 34 participating financial institutions’ ability to survive another recession.  For the third year in a row, all banks passed the stress test, indicating they will be able to maintain a minimum capital level of 3% to continue lending to households and businesses in the event of severe recession.

The annual stress test was instituted through Dodd-Frank reforms and financial institutions surveyed include Bank of America, Citigroup, Fifth Third, Goldman Sachs, JPMorgan Chase, and Wells Fargo.  This selection of 34 banks, comprise more than 75% of the assets of all domestic bank holding companies.

Fed Governor Jerome Powell said in a statement, “this year’s results show that, even during a severe recession, our large banks would remain well capitalized.  This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

At this time, Dodd-Frank reform is still on the agenda in Washington.  The Republican-sponsored replacement would “reduce the authority that regulators have” and “raise the level of assets for which banks would undergo the type of scrutiny that the stress tests employ.”  According to the stress test results, big financial institutions have the capital and liquidity positions needed to function during even extreme recession scenarios. 

Sources: CNBC, HousingWire, Rob Chrisman