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Citigroup Comes Out Strong in Stress Test, Announces Buyback Request

NEW YORK ( TheStreet) -- The Federal Reserve late on Thursday said the nation's largest banks will have sufficient capital to continue lending even under severely adverse economic conditions.

All but Ally Financial passed the regulator's annual stress tests for the nation's largest 18 bank holding companies.

The stress tests gauge the big banks' ability to withstand a deep recession beginning this year, while remaining well-capitalized with Tier 1 common equity ratios of at least 5.0%. This year's "severely adverse scenario" includes a 4% increase in the unemployment rate during 2013, along with 5% negative GDP growth, a 50% decline in equity prices and a 20% decline in real estate prices.

The Fed said that projected losses at the 18 bank holding companies would total $462 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014 in the hypothetical stress scenario.

That is well above the regulatory minimum of 5% and is calculated "using capital action assumptions provided within the Dodd-Frank Act stress testing rule."

Here's how the "big four" U.S. banks would perform under the severely adverse scenario described above, according to the Federal Reserve.

Bank of America's (BAC - Get Report) Tier 1 common equity ratio would fall from 11.41% as of Sept. 30, to 6.8%.

Citigroup's (C - Get Report) Tier 1 common equity ratio would to drop from 12.7% as of Sept. 30, to 8.3%.

JPMorgan Chase's (JPM - Get Report) Tier 1 common equity ratio would decline from an actual 10.4% as of Sept. 30 to 6.3%.

Wells Fargo's (WFC - Get Report) Tier 1 common equity ratio would decline from 9.9% as of Sept. 30, to 7% under the severely adverse scenario.

"These results, achieved in the face of extreme assumptions and highly pessimistic scenarios, are further proof that the banking industry has rapidly regained its health and is strong enough to withstand even the most challenging economic circumstances," the American Bankers Association President and CEO Frank Keating said in a statement.
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