(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.

Business News: US Banks Stress Test

US Banks Face 'Toughest' Stress Tests

November 24, 2011
(1:50)
The Fed told the 31 largest U.S. banks Tuesday to test their lending capacity under a hypothetical economic recession.
   
TRANSCRIPT

To leave a comment, please log in with Facebook Connect or your Newsy account. Register here to create one.
MOST RECENT|MOST POPULAR|MOST COMMENTED|HIGHEST RATED

Leaders Continue to Disagree on Eurozone Plans
European Leaders met at a summit in Brussels, but have failed to find a consensus plan of action for the Eurozone.
(2:00)
May 27, 2012
Syrian Conflict at Possible 'Turning Point'
U.N. observers verify attacks for first time.
(1:39)
May 27, 2012
Top News Headlines: Afghan Officials: Airstrike Kills Family
More headlines: Four NATO troops killed in roadside bomb attacks; Syrian rebels call for Houla retaliation; rebel groups in Mali join forces.
(1:25)
May 27, 2012
PayPal Extends In-Store Purchasing
PayPal teams up with 15 new retail stores providing users with a new way to shop.
(1:48)
May 27, 2012
Knicks Hire Woodson as Head Coach
The New York Knicks removed the interim tag from now-head coach Mike Woodson. Woodson signed for what is believed to be a three-year deal as coach.
(1:46)
May 27, 2012
Internet Defense League Will Use Cat Signal to Protect Web
The group hopes to build a network that can be summoned to fight internet legislation like SOPA.
(1:48)
May 27, 2012
NASA Warns Lunar Explorers Not to Touch its Stuff
The space agency declared the area around its moon artifacts to be protected zones, asking other explorers to keep away.
(1:49)
May 27, 2012
Controversy Over Erotic Best Seller ‘50 Shades of Grey’
Libraries struggle whether to ban the book, which they say qualifies as erotica but is also one of the most checked-out books.
(2:23)
May 27, 2012
Pope's Butler Arrested Over Leaked Vatican Documents
The Pope's butler is accused of leaking confidential Vatican files to Italian media.
(1:35)
May 26, 2012
Alternate Juror Flirts with John Edwards
A female juror has been outwardly flirting with John Edwards during his trial - and Edwards has actually been responding.
(1:17)
May 26, 2012
Top News Headlines: Obama to Honor Vets on Memorial Day
More headlines: Memorial Day gas prices lower, yet still high; Experts suspicious of Iran's nuke program; Southeast braces for Beryl.
(1:25)
May 26, 2012
49ers' QB Smith Criticized for Cam Newton Comments
Smith downplayed the Panther's QB's accomplishments last year, which wasn't too popular with Newton's teammates.
(2:04)
May 26, 2012
Syrian Crisis Continues with Massacre in Houla
An attack on the Syrian town of Houla killed at least 90 people on Saturday, including around 25 children.
(1:28)
May 26, 2012
New York School Cancels Prom Condom Giveaway
A high school in New York planned to give out 500 condoms at prom to promote safe sex, but the principal changed his mind.
(1:55)
May 26, 2012

Newsy

www1