Most major banks pass Fed stress test

WASHINGTON – All but four of 19 major U.S. banks got a green light Tuesday from the Federal Reserve to boost their dividends and take other steps that will make their stocks more attractive to investors.

The Fed’s findings signaled its confidence that the financial system, which nearly collapsed 31/2 years ago, is healthy again.

J.P. Morgan, Wells Fargo and other large bank holding companies that passed the Fed’s so-called stress tests raised their dividends and announced plans to buy more of their stock. The news ignited a late-day rally on Wall Street. The Dow Jones industrial average shot up 218 points to its highest close since the end of 2007.

“It’s clearly good news – the U.S. banking system can now withstand a quite severe recession without falling over,” said Douglas Elliott, a fellow at the Brookings Institution, a nonpartisan policy think tank.

One notable exception was Citigroup, the nation’s third-largest bank. It was among the companies the Fed said lacked enough capital to withstand another severe economic crisis.

The other three financial institutions that did not pass the Fed’s hypothetical stress tests were Ally Financial, SunTrust and MetLife.

The Fed released the results two days earlier than planned after JPMorgan sent out a press release late Tuesday saying it had passed the test.

The Fed reviewed the balance sheets of 19 bank holding companies to determine whether they could withstand a severe crisis: unemployment at 13 percent, stock prices falling 60 percent over two years and home prices plunging 21 percent from today’s levels.

The overall financial system is much stronger than it was in 2009. In the first quarter of that year, the 19 companies stress-tested by the Fed held $420 billion in cash and assets easily convertible to cash. That figure climbed to $759 billion by the end of 2011.