Federal regulators by the end of April will complete "stress tests" to determine the financial health of the top 19 major U.S. banking organizations with more than $100 billion in assets. While we can't replicate the government's tests with available data, we can get a pretty good idea of which banks will be scrutinized and what the results will look like.
The stress tests are "forward-looking capital assessments" meant to determine whether any of the large bank holding companies need "an additional capital buffer during this period of heightened uncertainty," according to the Treasury's White Paper on the Capital Assistance Program. Regulators will conduct two tests: One using assumptions for gross domestic product growth and unemployment expected by most economists; and another using a "more adverse scenario," reflecting a deeper recession than what is currently forecast.
Holding companies found to be in need of additional capital will have six months to either raise some or all of the capital privately, or apply to immediately raise some or all of the needed capital from the treasury, through the CAP.
In the below list, we have emphasized the ratio of nonperforming loans and debt securities to tier-1 capital and loan loss reserves. This is also known as the "Texas Ratio."
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