(Adds analyst comment)
By Emily Stephenson
WASHINGTON, March 20 U.S. big banks have enough
capital buffers to withstand a drastic economic downturn, the
Federal Reserve said on Thursday, announcing that 29 out of 30
major banks met the minimum hurdle in its annual health check.
All of the big banks except for Zions Bancorp
stayed above the 5 percent requirement for top-tier capital in
the latest round of stress tests.
The tests aim to show how banks would weather a financial
collapse similar to the 2007-2009 crisis. Banks had to show how
they would cope with a halving of the stock market, and the
eight largest banks had to weigh the impact of the default of
their biggest trading counterparty.
"While capital is certainly better than it has been in past
years, these firms certainly are subject to drops in capital and
earnings when subject to severe stress," said John Corston, a
director in Deloitte's regulatory group.
Several firms appeared to disagree with the Fed's scores.
Bank of America and Wells Fargo released the
results of internal stress tests that showed them performing
better than they did under the regulators' tests.
Stress tests are closely watched by financial markets as a
sign of the industry's health, and also because the Fed can
reject banks' plans to return capital to shareholders if they
think the banks are not strong enough to carry them out.
European regulators plan to conduct their own stress tests
later this year, following a broad review of the asset quality
of banks on the continent.
The Fed will announce on March 26 which banks' plans to pay
dividends or buy back shares were approved.
CAPITAL PLAN SPECULATION
For the results released on Thursday, the Fed assumed banks
would keep dividends at their current levels and buy back no
shares. This release sets off several days of speculation about
whether banks with relatively low capital ratios will be allowed
to increase dividends.
"The only results that are more nerve racking than stress
test results for bankers are their bonus results," said Dan
Ryan, head of PricewaterhouseCoopers's financial services
"Although almost every bank came above the capital floor in
today's results, we think two to four won't be able to satisfy
the Federal Reserve next week that their planned capital actions
are appropriate," he said.
Zions was the only bank to miss the minimum, with a tier 1
capital ratio of 3.5 percent in the most severe stress scenario.
A spokesman for Zions was not immediately available for comment.
Zions said last month that it expected to resubmit its
capital plan due to the sale of some securities that contributed
to losses under the toughest stress scenario.
The other 29 banks stayed above the minimum levels. But M&T
Bank came in relatively low, at 5.9 percent, and Bank of
America's tier 1 ratio was 6 percent.
Bank of America, however, released its own stress tests that
showed its capital ratio at a much higher 8.6 percent. A
spokesman for the bank declined to comment.
Wells Fargo also released internal test results that were
higher than the marks it received from the Fed.
Bank of New York Mellon, Discover Financial Services
and State Street had the highest capital ratios.
Discover announced shortly after the release on Thursday that it
planned to increase its quarterly dividend.
Capital ratios are not always clear indicators of whether
the Fed will approve a bank's capital plan. Last year,
regulators directed JPMorgan Chase and Goldman Sachs
to redo their proposals due to concerns about their
capital planning processes.
The group of 30 banks' aggregate tier 1 common capital ratio
dipped to 7.6 percent under the toughest stress scenario. That
ratio was 5.5 percent at the beginning of 2009, the Fed said.
This was the first year that Zions and 11 other banks, among
which were Comerica and Discover, participated in the
full stress test regime.
The other 18 banks, among which were JPMorgan, Citigroup
and Morgan Stanley, participated in previous
rounds. Together, the 30 banks accounted for about 80 percent of
total banking assets in the United States, the Fed said.
(Reporting by Emily Stephenson, additional reporting by Peter
Rudegeair and David Henry in New York; Editing by Douwe Miedema,
Leslie Adler and Bernard Orr)