How safe are America's biggest banks? - Western Mass News - WGGB/WSHM

Of the 34 banks that were required to undergo the most recent stress tests, Ally Financial Inc (ALLY.N) and KeyCorp (KEY.N) were the only two lenders to show common equity Tier 1 capital ratios below 7 percent.

Although the banks, including household names like JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N), would suffer $383 billion (£302 billion) in loan losses in the Fed's most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year's level.

The Federal Reserve says all of the country's big banks passed this year's stress test, in which regulators create a scenario where unemployment surges and banks lose hundreds of billions of dollars in loans. The Fed said the losses would reduce the banks' high-quality capital from 12.5 percent of its loans in the fourth quarter past year to 9.2 percent at the end of 2017.

Banks are still subject to a second portion of the test in which the Fed approves or denies their capital plans.

"I don't think what we are talking about here amounts to deregulation", said Federal Reserve Governor Jerome Powell, the central bank's regulatory point man.

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President Trump has vowed to scrap many regulations on banks, particularly those that he says have suppressed lending. Those banks represent about 75 percent of all US assets.

In the first round, under the tests' hypothetical "severely adverse" scenario, the US would endure a catastrophic recession in which unemployment - now at 4.3 percent - reached at least 10 percent, home prices dropped 25 percent, the stock market plunged about 40 percent and market volatility rose sharply.

The more closely watched day by investors will come next Wednesday, when the Fed tells banks whether they showed good enough judgment this year to buy back stock or pay dividends to shareholders. This year, the Fed projected supplementary leverage ratios at the largest banks. Wells Fargo's metric also fared better in its own test than under the Fed's, by 0.8 of a point.

The report, which was released by the Treasury Department, recommended giving the president the power to fire the head of the Consumer Financial Protection Bureau, giving Treasury greater power to oversee bank regulators, requiring regulatory agencies to analyze the cost of new rules and stripping the Federal Deposit Insurance Corp. of its responsibility to oversee banks' plans for how they should be unwound if they fail. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank".

The financial industry, and mid-size banks in particular, have complained of the burden the new regulations place on lenders. But the bank can not do so without the Fed's approval.

(Copyright © 2015. All Rights Reserved.)
 
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