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Bank Stress Tests: A Scorecard
March 14th, 2012 3:12 PM

The annual report card for the nation’s 19 largest U.S. banks was released Tuesday -- two days earlier than originally planned -- and most of the institutions got a passing grade from the “teacher” (in this case, the Federal Reserve).

Just four of the 19 institutions got an ‘F’ on at least one of the requirements. What does this mean? In this case, the Fed is saying that the four lenders that did not pass – Citigroup (C), Sun Trust Banks (STI), Ally Financial and MetLife (MET) – would not be able to withstand an unlikely (but still possible) worst-case-scenario for the U.S. economy that would include a peak unemployment rate of 13 percent, a 50 percent plunge in equity prices and a 21 percent drop in housing prices. This does not mean that consumer cash would be at risk, since depositors are insured for up to $250,000 by the FDIC.

Citi, Ally and SunTrust all fell under the required Tier 1 common capital ratio (the key measure of a bank’s health) of at least 5 percent under this hypothetical situation, meaning their capital buffers would not be sufficient to survive this form of financial shock. MetLife, the nation’s largest insurer, failed in the risk-based capital ratio category, scoring a 6 percent when the minimum requirement is 8 percent. Risk-based capital is a measure of reserves that any institution dealing in risky ventures must have.

Citigroup’s results may have packed the biggest surprise punch. Before results were released, it was thought by some analysts that Citi was more likely to surprise to the upside and get the OK to boost its one-penny-per-share dividend, something shareholders have been anxiously awaiting. Citi plans to revise and resubmit its capital plan; it’s likely that, if it did not include a plan to increase its dividend, the bank’s capital would be seen as sufficient for a severe economic downturn.

Below you will find a scorecard for all the banks in the common capital ratio category, calculated through the fourth quarter of 2013:



 

 

http://finance.yahoo.com/news/test-20120314.html


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Posted by Jennifer Stepanek on March 14th, 2012 3:12 PMPost a Comment

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