Biggest US banks clear first hurdle in Fed's annual stress tests

"There is little doubt that the US financial system is stronger today than it was a decade ago", Powell said in testimony to be delivered before the US Senate Committee on Banking, Housing and Urban Affairs.

The rule should focus only on banks that do a lot of trading, said Federal Reserve Governor Jerome Powell, who leads banking regulation for the central bank.

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.

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 banks were tested to determine if they have large enough capital buffers to keep lending, even if hit with billions of dollars in losses brought on by a financial crisis and severe economic downturn.

The report also endorsed the idea of forcing the Fed to make its stress tests of the largest USA banks more transparent.

Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations.

The second portion of the test, to be released on Wednesday, will show whether the Fed approves or denies banks' capital plans.

The Fed can reject a bank's capital plan for either reason. He said the Fed supports increasing the $50 billion asset threshold set in the 2010 law so that the rule would only apply to the largest banks. Its model produced a 9.8 percent minimum CET1 ratio, 1.4 points better than the Fed's.

Goldman Sachs Group's projected loan-loss rate of 8.1 per cent was surpassed only by commercial lenders or card issuers such as American Express, Capital One Financial Corp, and Discover Financial Services.

Banks coming closest to not meeting the minimum capital ratio were Ally Financial, with a tested level of 6.5 percent; Capital One Financial, with 7.0 percent; Huntington Bancshares, 7.0 percent; KeyCorp, 6.8 percent; and SunTrust Banks, 7.1 percent. With the Dodd-Frank results in hand, now banks have the option of revising their capital plans before CCAR is released.

Banks that decide to resubmit their plans can only make downward revisions to the amount of capital they plan to use, meaning management teams that were too conservative may regret their submissions even if they pass.

BB&T is among 34 bank holding companies required by the Federal Reserve to do stress-test assessments twice annually.

  • Zachary Reyes