(Image source: NewsOne)

 

BY WEN YAN

 

The Federal Reserve will conduct stress tests on 31 largest U.S. banks to see if they can weather an economic storm at home and abroad.

The Financial Times explains.

Tom Braithwaite “ … One of the biggest overhangs of the US Bank Stocks is the worries that it’s gonna be dragged into some morass started in the euro zone.  And this would give us a better idea next year how the balance sheet would measure up to that.”

The banks need to disclose estimated capital levels and revenues against potential “global market shock”.  The Wall Street Journal says the transparency can bolster the investors’ confidence.

 
“…The Fed has been reluctant to grant those additional approvals with the memories of the 2008 financial crisis still fresh … It will apply ‘particularly close scrutiny’ to any dividend increases that are not ‘conservative’—defined as a payout ratio below 30% of after-tax income available to common shareholders.”

The economic downturn scenario outlined by the test includes 13 percent domestic unemployment rate, a peak decline in euro zone GDP and a break down in global financial system.

An analyst told Bloomberg this hypothetical stress is too much to handle.

Richard Bove: “ By taking these draconian views of what could happen in the market, if it in fact to force the banks to defend themselves against the outlook they put up, it’ll cause a recession… You are asking them to increase their equity dramatically, increase their liquidity dramatically and to stop lending.”

This is the FED’s third annual stress test.

According to Los Angeles Times, the first one performed in the spring of 2009 helped to reassure investors America’s biggest banks had the resources to get through the  financial crisis.

Banks have until next January to submit the relevant data.  A banker complained to the Financial Times they have to cancel vacation for preparation.

US Banks Face 'Toughest' Stress Tests

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Nov 24, 2011

US Banks Face 'Toughest' Stress Tests

(Image source: NewsOne)

 

BY WEN YAN

 

The Federal Reserve will conduct stress tests on 31 largest U.S. banks to see if they can weather an economic storm at home and abroad.

The Financial Times explains.

Tom Braithwaite “ … One of the biggest overhangs of the US Bank Stocks is the worries that it’s gonna be dragged into some morass started in the euro zone.  And this would give us a better idea next year how the balance sheet would measure up to that.”

The banks need to disclose estimated capital levels and revenues against potential “global market shock”.  The Wall Street Journal says the transparency can bolster the investors’ confidence.

 
“…The Fed has been reluctant to grant those additional approvals with the memories of the 2008 financial crisis still fresh … It will apply ‘particularly close scrutiny’ to any dividend increases that are not ‘conservative’—defined as a payout ratio below 30% of after-tax income available to common shareholders.”

The economic downturn scenario outlined by the test includes 13 percent domestic unemployment rate, a peak decline in euro zone GDP and a break down in global financial system.

An analyst told Bloomberg this hypothetical stress is too much to handle.

Richard Bove: “ By taking these draconian views of what could happen in the market, if it in fact to force the banks to defend themselves against the outlook they put up, it’ll cause a recession… You are asking them to increase their equity dramatically, increase their liquidity dramatically and to stop lending.”

This is the FED’s third annual stress test.

According to Los Angeles Times, the first one performed in the spring of 2009 helped to reassure investors America’s biggest banks had the resources to get through the  financial crisis.

Banks have until next January to submit the relevant data.  A banker complained to the Financial Times they have to cancel vacation for preparation.
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