The largest U.S. banks collectively showed that they can withstand a severe economic downturn and continued to improve their capital positions, according to the results of Dodd-Frank Act-mandated stress tests the Federal Reserve released yesterday.
Aggregate Tier 1 capital ratios at the 31 firms subjected to the Fed’s stress-test program would fall from an actual 11.9 percent in the third quarter of 2014 to the minimum level of 8.2% under the test’s most extreme hypothetical scenario -- including, among other things, a spike in unemployment, a 25% decline in home prices and a 60% 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 the American Bankers Association was pleased that America’s largest financial institutions once again performed well. “With total industry capital now over $1.7 trillion, banks are well positioned to continue serving as a critical driver of our economic growth going forward.”
“Banks’ improved capital positions and strong balance sheets should allow institutions to continue meeting customer needs and to pay dividends that help attract investors to fund future growth,” Keating added.