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Friday, March 21, 2014

Large Banks Pass Dodd-Frank Stress Tests

The largest U.S. banks collectively showed a continued ability to withstand a severe economic downturn and remain in a much stronger capital position than before the financial crisis, according to the results of Dodd-Frank Act-mandated stress tests released by the Federal Reserve.
Fed Governor Daniel Tarullo said:

Each year we are making substantial improvements, which have helped make the process even stronger than when we first conducted the stress tests in the midst of the financial crisis five years ago.

Aggregate Tier 1 capital ratios at the 30 firms subjected to the Fed’s stress-test program would fall from an actual 11.5% in the third quarter of 2013 to the minimum level of 7.6% under the test’s most extreme hypothetical scenario — including, among other things, a spike in unemployment, a decline in home prices to 2001 levels and a 50% drop in equity prices.

The Fed noted that even with the hypothetical declines, capital levels at the banks would still be much higher than they were following the 2008 financial crisis, when Tier 1 capital ratios for the firms fell to about 5.5% at the end of that year.

ABA President and CEO Frank Keating said ABA is pleased that an overwhelming majority of institutions once again performed well.
Regulators threw every economic calamity they could think of at our nation’s largest banks, and these institutions once again proved their ability to handle even the most extreme financial distress. Building on last year’s strong results, banks continued to substantially improve their capital positions and the strength of their balance sheets.

Read more.
View the stress test methodology and results.
Read Keating’s statement.
Watch Keating’s Bloomberg appearance.

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