WASHINGTON – More than five years after the financial crisis struck, the biggest U.S. banks are better able to withstand a severe recession than at any time since the meltdown, the Federal Reserve has determined.
Results of the Fed’s annual “stress tests” showed Thursday that all but one of 30 top banks passed muster with sufficient capital buffers to keep them lending through an economic crisis. Only Zions Bancorp fell short. The results showed continued improvement in banks’ financial positions since the 2008 crisis, the Fed said. That built on positive results from last year’s tests.
“The industry is stronger and more profitable than a year ago,” said RBC Capital Markets banking analyst Gerard Cassidy.
The 30 banks tested included Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo and Co.
The Fed has conducted stress tests of the largest U.S. banks every year since 2009. The annual checkup is designed to measure how well the industry would fare in another severe recession. It aims to ensure that banks could keep lending during such a punishing stretch.
Under the Fed’s stress tests’ “severely adverse” scenario, the U.S. would undergo a recession in which unemployment – now at 6.7 percent – would reach 11.25 percent, stocks would lose nearly half their value and home prices would plunge 25 percent.
Under the test, the losses projected for each bank are compared with the capital each holds as a buffer.
The Fed said that under the crisis scenario, the 30 banks would suffer combined losses on loans of $366 billion through the fourth quarter of 2015. That’s down from projected losses of $462 billion in last year’s tests – even with a much larger number of banks. Fed officials said the change reflected the banks’ progress in shedding delinquent and defaulted loans from their balance sheets.