America's big banks are a step closer to paying billions of dollars to shareholders after the Federal Reserve determined that their cash reserves were large enough to withstand a severe shock to the USA economy.
In this scenario, loan losses would amount to $383 billion over nine quarters. The Fed says it was the first time that the tests showed credit card lending as the biggest loss category.
"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Federal Reserve Governor Jerome Powell said in a statement.
Wall Street banks have enough armor to shield Americans from another financial crisis.
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.
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Fed officials emphasized that the stress tests don't come with "pass" or "fail" though the results bode well for banks passing the second part of the test next week. The ratio of capital, which allows lenders to absorb losses, to risk-weighted assets would drop from 12.5 per cent to 9.2 per cent.
The other five largest banks, JPMorgan, Bank of America, Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley, showed common equity Tier 1 capital ratios between 8.4 and 9.4 percent in the Fed's most aggressive scenario. But the bank can not do so without the Fed's approval.
BB&T projected having $5.4 billion in net revenue during the period and a loan-loss provision of $7.9 billion. Bank executives and many investors hope the Fed will allow lenders to put a lot more capital toward stock buybacks and dividends. The Fed has also seen the tactic as a way to poke around bank balance sheets for weak assets.
The tests have become less dramatic in recent years with fewer quantitative failures.
The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a U.S. unit of the troubled German financial giant. The day we get to learn which banks have all their ducks in a row and which will have to supplicate before the feet of the Great Yellen in order to regain their seat at the big boy table. Bank of America's was 0.7 of a point worse.