Major US banks would withstand recession: Fed
The largest US banks would withstand a severe recession and still be able to lend to American households and businesses, the Federal Reserve announced Thursday.
The results of the first part of the central bank’s so-called stress tests showed 34 major lenders were on solid capital footing, the Fed said.
The tests are conducted under the 2010 Dodd-Frank financial reform laws, which Congress enacted in the wake of the 2008 global financial crisis — and which President Donald Trump has vowed to scale back.
“This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” Fed Governor Jerome Powell said in a statement.
“This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”
The results portrayed a picture of increasing resilience in the banking sector, with the 34 participating firms having added $750 billion in common equity capital since 2009.
The most severe hypothetical scenario imposed by the Fed supposed a global economic downturn even worse than the recent Great Recession.
US unemployment would rise to 10 percent, accompanied by a 35 percent drop in commercial real estate prices and pressures on corporate loan markets as well.
In this scenario, loan losses would amount to $383 billion over nine quarters. The ratio of capital, which allows lenders to absorb losses, to risk-weighted assets would drop from 12.5 percent to 9.2 percent. (AFP)