US releases stress test results early
(15 March 2012 – United States) The United States Federal Reserve revealed most of the nation’s largest banks passed the annual stress test, in an earlier-than-expected release.
The failing grade for Citigroup, the nation’s third largest bank was a substantial surprise.
Going into the tests some analysts felt it had a better chance of a positive surprise than any other financial institution.
The Fed said on Tuesday that 15 of the 19 banks tested could take a financial shock that would see unemployment hit 13 percent and housing prices drop 21 percent.
Among the winners was JPMorgan, which has been agitating for regulators to loosen the handcuffs on the ability of banks to raise dividends and buy back stock.
The Fed uses the annual stress tests to give the markets a window into the health of the US bank industry, and also determine if individual banks are strong enough to reduce their capital buffers.
JPMorgan, in a surprise to markets, announced in the afternoon that the Fed had given it permission to raise its quarterly dividend by a nickel to 30 cents and buy back as much as US$12 billion (A$11.4 billion) of stock this year.
Regarding the outcome of the tests, the Fed official said the capital positions of US banks has improved substantially in the last three years.
The Fed took a tough line with the banks, and in a number of instances, the central bank's estimates of banks' losses under the hypothetical financial shock were larger than the firms' own, the official said.
'Overall, we can't complain that these tests weren't rigorous enough and it's good to know that most banks would at least survive another global financial meltdown. Nevertheless, this doesn't mean that the US economy would be unaffected by a meltdown in Europe,' said Paul Ashworth, chief US economist at Capital Economics in Toronto.
Going into the tests some analysts felt it had a better chance of a positive surprise than any other financial institution.
The Fed said on Tuesday that 15 of the 19 banks tested could take a financial shock that would see unemployment hit 13 percent and housing prices drop 21 percent.
Among the winners was JPMorgan, which has been agitating for regulators to loosen the handcuffs on the ability of banks to raise dividends and buy back stock.
The Fed uses the annual stress tests to give the markets a window into the health of the US bank industry, and also determine if individual banks are strong enough to reduce their capital buffers.
JPMorgan, in a surprise to markets, announced in the afternoon that the Fed had given it permission to raise its quarterly dividend by a nickel to 30 cents and buy back as much as US$12 billion (A$11.4 billion) of stock this year.
Regarding the outcome of the tests, the Fed official said the capital positions of US banks has improved substantially in the last three years.
The Fed took a tough line with the banks, and in a number of instances, the central bank's estimates of banks' losses under the hypothetical financial shock were larger than the firms' own, the official said.
'Overall, we can't complain that these tests weren't rigorous enough and it's good to know that most banks would at least survive another global financial meltdown. Nevertheless, this doesn't mean that the US economy would be unaffected by a meltdown in Europe,' said Paul Ashworth, chief US economist at Capital Economics in Toronto.
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