America's biggest banks pass post-crisis stress tests

The Federal Reserve released initial results of its yearly stress tests to determine whether the nation's banks are financially strong enough to weather a severe recession

"We see today's.stress test results as a positive for Trump administration efforts to deregulate the banks", said Jaret Seiberg, a policy analyst with Cowen & Co.

Mr Powell said this week the Fed would be open to reasonable changes to the law, including the threshold for including banks in the stress tests.

"From this solid foundation, the focus should now turn to what can be done to help U.S. banks promote economic growth even further". The Federal Reserve plans to publicly release the results of CCAR on Wednesday, June 28, 2017. It showed whether the banks would meet minimum requirements under the Fed's methodology, using materials they submitted. The Fed is expected to release that component next week. The regulatory minimums are 4.5 percent for Tier 1 common ratio and 6 percent for Tier 1 risk-based capital ratio.

In the first round, under the tests' hypothetical "severely adverse" scenario, the USA would endure a catastrophic recession in which unemployment - now at 4.3 percent - reached at least 10 percent, home prices dropped 25 percent, the stock market plunged about 40 percent and market volatility rose sharply. The banks, with at least $50 billion in total assets, represent more than 75 percent of domestic banking assets. That's when the Fed will announce whether it has approved banks' requests to increase dividends or buy back shares. 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. Citi's own analysis showed that metric at 10 percent.

The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a USA unit of the troubled German financial giant.

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Of those, Goldman Sachs had the biggest optimism gap compared with the Fed when it came to the worst-case scenario.

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

FILE - This Monday, July 18, 2016, file photo shows the top of a Bank of America ATM booth, in Woburn, Mass.

That would trigger combined losses of almost $500bn over more than two years - including $383bn from loans - but the firms have enough of a cushion to handle such a blow, the Federal Reserve said.

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