WASHINGTON (AP) — More than five years after the
financial crisis struck, the biggest U.S. banks are better able to
withstand a severe recession than at any time since the meltdown, the
Federal Reserve has determined.
Results of the Fed’s annual
"stress tests" showed Thursday that all but one of 30 top banks passed
muster with sufficient capital buffers to keep them lending through an
economic crisis. Only Zions Bancorp fell short. The results showed
continued improvement in banks’ financial positions since the 2008
crisis, the Fed said. That built on positive results from last year’s
tests.
"The industry is stronger and more profitable than a year ago," said RBC Capital Markets
banking analyst Gerard Cassidy.
The
banks’ stronger positions should enable them to pursue business plans,
pay dividends to shareholders, raise capital from investors and expand
services to customers, said Frank Keating, president of the American
Bankers Association.
The 30 banks tested included Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and
Wells Fargo and Co.
The
Fed has conducted stress tests of the largest U.S. banks every year
since 2009, when the financial crisis plunged the country into the worst
economic downturn since the Great Depression of the 1930s. The annual
checkup is designed to measure how well the industry would fare in
another severe recession. It aims to ensure that banks could keep
lending during such a punishing stretch.
Under the Fed’s stress
tests’ "severely adverse" scenario, the U.S. would undergo a recession
in which unemployment — now at 6.7 percent — would reach 11.25 percent,
stocks would lose nearly half their value and home prices would plunge
25 percent.
Under the test, the losses projected for each bank are compared with the capital each holds as a buffer.

The
Fed said that under the crisis scenario, the 30 banks would suffer
combined losses on loans of $366 billion through the fourth quarter of
2015. That’s down from projected losses of $462 billion in last year’s
tests — even with a much larger number of banks. Fed officials said the
change reflected the banks’ progress in shedding delinquent and
defaulted loans from their balance sheets.
The 30 banks were also
tested on how well they would withstand severe downturns in Europe and
in Asian countries like China and Japan.
The Fed will announce next week whether it will approve plans by some of the banks to increase dividends
or buy their own stock.
Nearly
all U.S. banks with $50 billion or more in assets were in the group of
30 that were tested. Together they account for some $13.5 trillion in
assets — about 80 percent of U.S. banks’ total amount. Twelve of the 30
banks were added to the testing roster for the first time this year.
Most
of the 30 banks tested, along with hundreds of others, received federal
bailouts during the financial crisis. The banking industry has been
recovering steadily since then, with overall profits rising and banks
starting to lend more freely. The banks have mostly repaid the taxpayer
bailouts.
Zions, the only bank to fall short this year, is based
in Salt Lake City. It slid to a loss in the fourth quarter as it booked
hefty charges related to losses on investment securities and other
one-time items. Representatives of Zions had no immediate comment
Thursday.
Last year, government-owned Ally Financial Inc. was the only bank that failed. In this round, Ally
passed.
Ally
said it was pleased that the test results "recognized the substantial
transformation that the company has undergone since last year."
The
Fed concluded last March that Wall Street powerhouses JPMorgan Chase
& Co. and Goldman Sachs Group Inc. needed better plans for coping
with a severe downturn and gave the banks until September to revise
them. The two banks were allowed to increase their dividends and buy
back their stock on condition they submitted revised capital plans that
satisfied the Fed.
At the same time, the Fed approved requests
outright from 14 of the 18 banks tested, including Bank of America,
Citigroup, Morgan Stanley and Wells Fargo.
But the Fed forbade Ally and BB&T Corp. from making any dividend increases and share buybacks
they may have been seeking.
Next
Wednesday, the Fed will announce whether it has approved each bank’s
request, if one has been made, to raise dividends for shareholders. Its
decisions will be based on how each bank would fare in a severe
recession if it increased its payout.
Raising dividends costs
money. The government doesn’t want banks to deplete their capital
reserves, making them vulnerable in another recession.
The other
banks tested were: American Express Co., Bank of New York Mellon Corp.,
BBVA Compass Bancshares Inc., BMO Financial Corp., Capital One Financial
Corp., Comerica Inc., Discover Financial Services, Fifth Third Bancorp,
HSBC North America Holdings Inc., Huntington Bancshares Inc., KeyCorp,
M&T Bank Corp., Northern Trust Corp., PNC Financial Services Group
Inc., RBS Citizens Financial Group Inc., Regions Financial Corp.,
Santander Holdings USA Inc., State Street Corp., U.S. Bancorp and
UnionBanCal Corp.
___
Veiga reported from Los Angeles.
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