US banks have enough capital to withstand severe recession: Fed

US-banks-have-enoughWashington, (IANS) The largest US banks have improved their capital levels and strengthened their ability to withstand a severe recession, according to the results of supervisory stress tests released by the Federal Reserve on Thursday.

A total of 33 largest US banks participated in the stress tests, and these banks would incur $385 billion of loan losses in total over a period of nine quarters under the most severe scenario, Xinhua news agency cited the central bank as saying in a statement.

These banks’ aggregate common equity tier one capital ratio, which compares high-quality capital to risk-weighted assets, would fall to a minimum level of 8.4 per cent in the stress scenario, well above the minimum requirement set by regulators.

This is the sixth round of stress tests led by the Fed since 2009. The 33 banks represent more than 80 per cent of the US domestic banking assets, said the Fed.

The Fed will announce the second part of the stress tests’ results, known as CCAR, on June 29.

The Comprehensive Capital Analysis and Review (CCAR) is an annual exercise to evaluate the capital planning process and capital adequacy of large banks. The CCAR results could affect banks’ buyback and dividend plans.

Medaram Jathara

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