In a worst-case scenario, the biggest US banks would lose $541 billion, but would still have more than enough capital to cover the losses, according to the results of the Federal Reserve System’s (FRS) annual stress test.
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According to foreign media, the grades given by the FRS on Wednesday to banks including JPMorgan Chase and Goldman Sachs confirm the assertions of Wall Street leaders and regulators that systemically important banks can withstand large losses.
The results also help determine how much capital banks need to hold for the next 12 months. As long as banks meet or exceed the requirements, they are free from FRS restrictions on how much capital they can invest in shareholder dividends and share buybacks, writes the Financial Times.
The findings come just months after the failures of three of the largest banks in US history – Silicon Valley Bank, Signature Bank and First Republic – sparked a regional banking crisis. The stress tests did not include smaller banks that have felt pressure from investors following their collapse.
“Today’s results confirm that the banking system remains strong and resilient,” FRS deputy supervisor Michael Barr said in a statement.
FRS stress tests are carried out annually and were introduced after the 2008 crisis to assess whether banks’ loss-making capital ratios would remain above minimum requirements in the event of an economic catastrophe.
This year, banks had to show they could withstand unemployment rising to 10%, commercial real estate prices falling by 40%, housing prices falling by 38% and short-term interest rates falling to near zero.
Of the 23 banks examined, Deutsche Bank’s US subsidiary may suffer the biggest capital blow, followed by UBS America.
2023-06-29 11:17:14
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