US banks would lose $700bn in economic crash, Fed stress tests find

{"text":[[{"start":10.1,"text":"The Federal Reserve found the largest US banks would lose more than $708bn in an economic collapse but remain above regulatory capital requirements, according to the central bank’s annual stress tests. "}],[{"start":23.799999999999997,"text":"The Fed on Wednesday gave pass grades to the country’s 32 biggest banks — including JPMorgan Chase, Bank of America and Goldman Sachs — in its stress tests. The results allowed several Wall Street lenders to lift investor payouts."}],[{"start":40,"text":"The annual exercise started in 2009 and helped restore confidence in the banking sector after the financial crisis but in more recent years it has faced criticism for being increasingly formulaic."}],[{"start":51.75,"text":"The stress tests gauge the resilience of banks through a series of doomsday economic scenarios. This year modelled a global recession, unemployment rising to 10 per cent and a 30 per cent drop in home prices."}],[{"start":65.35,"text":"Losses in these hypothetical scenarios included about $200bn from credit card lending, $75bn from commercial real estate and over $150bn from corporate loans which include lending to non-bank financial institutions. The Fed found that the total equity capital would decline 1.6 percentage points under these scenarios, the slimmest fall in at least seven years. "}],[{"start":89.94999999999999,"text":"“Today’s results underscore the strength of the banking system,” said Fed vice-chair for supervision Michelle Bowman."}],[{"start":null,"text":"

"}],[{"start":96.94999999999999,"text":"Following the results, several large banks including JPMorgan, Goldman and Morgan Stanley announced plans to lift their dividends."}],[{"start":105.24999999999999,"text":"This year’s test is less impactful than usual. The process typically determines banks’ annual stress capital buffer, which is the amount of common equity tier one capital they must have in excess of regulatory minimums relative to their risk-weighted assets. This capital is in place to absorb potential losses. "}],[{"start":124.35,"text":"However, the Fed is freezing last year’s stress capital buffers, regardless of the result of this year’s test, as it reviews its overall stress test process following a lawsuit by bank lobby groups. Last year’s test resulted in steep declines in capital requirements for the largest banks, with Goldman the biggest beneficiary. These requirements will stay in place until 2027."}],[{"start":147.79999999999998,"text":"“It should be less of a market-moving event,” Christopher McGratty, KBW’s head of US bank research, said in advance of the results. "}],[{"start":155.6,"text":"US banks are already benefiting from lighter capital rules and earlier this year spent a record on share buybacks in the first quarter."}],[{"start":163.75,"text":"The Fed is also leading the implementation of the so-called Basel Endgame reforms and its current proposal would sharply cut capital requirements for the largest banks, a major win for the industry."}],[{"start":175.85,"text":"The US central bank also began cutting back on its supervisory staff last autumn, with Bowman spearheading efforts to trim the workforce by 30 per cent. She said on Tuesday in an internal memo seen by the FT that the reorganisation was complete and would come into force on July 12."}],[{"start":201.45000000000002,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1782346559_5654.mp3"}