| WASHINGTON, March 20
WASHINGTON, March 20 JPMorgan Chase,
Citigroup, Morgan Stanley and other banks will find
out if the Federal Reserve thinks they can cope with the next
financial crisis when it publishes the results of an annual
health check on Thursday.
If the Fed finds that any of the 30 banks subject to the
so-called stress tests are still at risk, the banks will then
have a few days to change any plans they may have made to return
capital to shareholders through dividends or share buy-backs.
Most banks are expected to pass the exam, but analysts will
closely watch the results. Last year, American Express
lowered its capital distribution proposal after the first
And banks may have been more willing to take risks with
their initial plans this year, now that they have been building
up capital in the years since the crisis.
"These banks are very well capitalized and I know they're
going to want to get more aggressive each incremental year in
terms of what they ask for," said Fred Cannon, global director
of research for Keefe, Bruyette and Woods.
The annual testing has become an increasingly important tool
for regulators to ensure that banks are not eating too much into
their capital cushions, by examining how banks would weather a
hypothetical major market shock.
Analysts said the biggest U.S. banks will probably meet the
Fed's requirements, having reduced their leverage, the amount of
debt compared to shareholder equity, since the 2007-2009
Bigger fireworks could come next week, when the Fed will
either approve or reject each firm's plans to pay dividends to
shareholders or buy back shares.
The Fed conducts stress tests each year to measure how
banks' loan books and security portfolios would hold up under
extreme economic scenarios not unlike those experienced during
the last crisis.
Thirty banks participated in this set of tests, up from 18
The first chunk of results is meant to show banks' relative
strength if each firm made the same capital moves. The Fed
assumed each bank would pay dividends equal to the average of
the past four quarters, and buy back no shares.
Last year, only Ally Financial failed to meet the minimum 5
percent capital buffer in the first round of the tests.
In a new hurdle imposed this year, the biggest eight banks
had to consider what would happen to their business if their
largest trading counterparty were to default.
The Fed will make its own projections for bank balance
sheets this year, and banks may release results of their
internal stress tests if they disagree.
(Reporting by Emily Stephenson; Editing by David Gregorio)