‘Stress tests’ show largest U.S. banks could withstand future crisis

'Stress tests' show largest U.S. banks could withstand future crisis

June 22 (UPI) — The U.S. central bank said testing this week has shown some of the nation’s largest financial institutions would be able to withstand another major economic downturn in the future.

The Federal Reserve’s annual “stress tests” examine the 35 largest bank holding companies, which hold 80 percent of U.S. assets.

The report, issued Thursday, found those banks are strongly capitalized and would be able to lend even during a severe global recession.

The exam is done every year to make sure U.S. banks have enough money to survive a situation similar to the financial crisis from 2007 to 2009 and the recession that followed.

The test uses hypothetical scenarios that imagine a severe global recession with U.S. unemployment at 10 percent. This scenario results in losses of $578 billion for the 35 banks, which have added about $800 billion in common equity capital since the crisis ended in 2009.

“Despite a tough scenario and other factors that affected this year’s test, the capital levels of the firms after the hypothetical severe global recession are higher than the actual capital levels of large banks in the years leading up to the most recent recession,” Fed Vice Chairman Randal K. Quarles said in a statement.

This is the eighth round of stress tests led by the Federal Reserve since 2009 and the sixth round required by the Dodd-Frank Act, which added regulations to safeguard against another economic crisi.

Last month, the U.S. House passed a bill to ease Dodd-Frank regulations on community banks and regional lenders.

The Economic Growth, Regulatory Relief, and Consumer Protection Act passed by a vote of 258-159, providing a step toward fulfilling President Donald Trump’s promise to repeal the Obama-era regulations.