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All 31 U.S. major banks pass Fed stress test

Staff writer |
All 31 U.S. largest banks passed a 5 percent minimum hurdle for top-tier capital in an annual stress test by the Federal Reserve.

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It means that, under a severe recession, the tier 1 common capital ratio of these banks could stay above the 5 percent level the Fed views as a minimum allowance.

Loan losses at the 31 participating banks would total $340 billion from the fourth quarter of 2014 to the fourth quarter of 2016 during a hypothetical economic shock featuring a deep recession with the unemployment rate peaking at 10 percent, a decline in home prices of 25 percent, a stock market drop of nearly 60 percent and a notable rise in market volatility.

The losses were lower than the $366 billion projected in the central bank's stress test results in 2014.

These banks'aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.9 percent in the third quarter of 2014 to a minimum level of 8.2 percent in the stress scenario, which is significantly higher than their 5.5 percent level measured in the beginning of 2009.

This is the fifth round of stress tests led by the Fed since 2009 and the third round required by the Dodd-Frank Act. The 31 banks tested represent more than 80 percent of the U.S. domestic banking assets.