The Federal Reserve said Thursday that the 35 biggest U.S. banks passed an annual "stress test," where regulators check to make sure banks could withstand a deep recession and falling asset prices without collapsing.
The Fed said in a press release that the nation's largest bank holding companies would remain able to lend to households and businesses during a severe global recession.
The test was required for big banks and U.S. subsidiaries of foreign banks whose failure could potentially put global financial markets at risk. The test is a precursor for an additional announcement from the Fed scheduled for next week, where the regulator signals approval or disapproval of banks' proposals for dividends and stock buybacks over the coming year.
According to the Fed, this year's test was more severe than last year's, featuring a severe global recession where gross domestic product plunges and the unemployment rate surges to 10%. The scenario also envisions a "global aversion" to long-term fixed-income assets, leading to steep losses on corporate bonds. Stock prices plunge by 65% by early 2019, and recessions develop not just in the U.S. but in Europe, the U.K., Japan and other parts of developing Asia.
The stress tests are a key input to the Fed's decision whether to allow banks to return capital their shareholders via dividends and stock buybacks.
Capital is the cushion of extra assets that banks must hold to protect depositors and prevent bailouts.
Many banks paid out big dividends in the years before the 2008 financial crisis, leaving them with insufficient capital to withstand the crisis. All of the biggest U.S. banks survived the crisis by getting bailouts from the U.S. Treasury Department and taking secret emergency loans from the Federal Reserve.
The annual stress tests were mandated as part of the 2010 Dodd-Frank Act.
These are the banks:
In the U.S.: Ally Financial (ALLY) , American Express (AXP) , Bank of America (BAC) , Bank of New York Mellon (BK) , BB&T (BBT) , Capital One (COF) , Citigroup (C) , Citizens Financial (CFG) , Discover Financial (DFS) , Fifth Third (FITB) , Goldman Sachs (GS) , Huntington (HBAN) , JPMorgan Chase (JPM) , KeyBanc (KEY) , M&T (MTB) , Morgan Stanley (MS) , Northern Trust (NTRS) , PNC Financial (PNC) , Regions Financial (RF) , State Street (STT) , SunTrust (STI) , U.S. Bancorp (USB) and Wells Fargo (WFC) .
The non-U.S. firms are: Barclays US, BBVA Compass Bancshares, BMO Financial, BNP Paribas USA, Credit Suisse Holdings (USA),
Deutsche Bank USA, HSBC North America Holdings, MUFG Americas Holdings, RBC USA, Santander Holdings USA, TD Group US and UBS Americas.
CIT, Comerica and Zions banks were left off the list because the financial legislation recently signed into law by President Trump exempted banks with less than $100 billion of assets, compared with the previous threshold of $50 billion.