Fitch Ratings said recently that while this year’s Fed-administered and supervised bank stress tests underscore the flexibility of America’s regional and custodial banks, the largest U.S. trading and universal banks will likely face capital problems.
The stress tests, which are mandated by the 2010 Dodd-Frank Act, examine the ability of 18 of America’s largest financial institutions to withstand economic pressures and shocks. The tests found that most banks are sufficiently capitalized to withstand heavy losses in their loan and trading books over a extended period of nine financial quarters. Of all the institutions reviewed, Ally Financial was the only institution that failed to maintain a Tier 1 capital ratio above five percent, Fort Mill Times reports.
Results from the Comprehensive Capital Adequacy Review, which analyzes banks’ capital plans, will be released on March 14. Based on the review results, all banks except Ally are expected to meet the requirements of the CCAR, because banks are able to re-submit capital plans after reviewing the results from the first round.
Big, regional and custodial banks saw fewer losses in Tier 1 capital ratios by the end of 2014 under the scenario, while regional institutions, including BB&T, PNC, U.S. Bancorp and Fifth Third, maintained capital ratios above seven percent by the end of 2014. Custodial banks performed the best in terms of capital levels and projected losses, according to Fort Mill Times.
Projected counterparty losses and trading for Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley would be affected more under the severely adverse economic scenario, though under the Fed’s stress tests, the numbers were similar to the banks’ own estimates.