ZCZC
BCN-17
US-BANK-FED-REGULATIONS
Largest US banks would survive recession: US Fed
WASHINGTON, June 22, 2018 (BSS/AFP) – The largest US banks are “strongly
capitalized” and would survive a severe global economic recession, the
Federal Reserve announced Thursday.
So-called stress testing by the central bank showed that in the event of
pronounced economic troubles — in which unemployment shot up to 10 percent,
GDP shrank and financial conditions worsened — the nation’s 35 biggest
financial institutions would still be able to lend to households and
businesses, according to the Fed.
However, certain changes in December’s sweeping tax overhaul and a harsher
hypothetical scenario led to much steeper projected losses than were
calculated last year, the central bank said in a statement.
Randal Quarles, the Fed’s recently appointed vice chairman for banking
supervision, said the testing showed that banks would end the next recession
in better shape than they started the last one.
“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,” he said.
The tests also showed the ratio of capital, which allows lenders to absorb
losses, to risk-weighted assets would drop from 12.3 percent at the end of
last year to 7.9 percent — weaker than 9.2 percent calculated a year ago.
Projected losses for the 35 banks amounted to $578 billion over nine
quarters, up sharply from the $383 billion in losses for 34 banks calculated
last year.
Officials said the higher projected losses reflected the fact that
December’s sweeping corporate tax cuts resulted in one-time accounting-
related charges and also removed some benefits banks had relied on during
prior recessions.
The scenario also envisioned a deeper economic shock than the prior round
of tests. Together the 35 banks account for 80 percent of all the assets of
banks operating in the United States.
The stress tests were required under the 2010 Dodd-Frank financial reform
laws enacted in the wake of the global financial crisis.
President Donald Trump in May signed a rollback of Dodd-Frank regulations,
freeing small and medium-sized banks from the law’s stress-test requirements,
among other changes.
Trump said at the time that Dodd-Frank’s strictures had restricted
lending, suppressing economic growth.
But the Federal Deposit Insurance Corporation in May that the US banking
sector, small community lenders as well as major financial institutions, just
had the most profitable quarter ever.
BSS/AFP/HR/1015