The Federal Reserve concluded its latest stress test of major American banks last week. BNY Mellon and State Street finished with the highest stressed ratios, or the minimum Tier 1 common ratios in a severely adverse market scenario.
BNY Mellon finished with a ratio of 13.2 and State Street with 12.8. American Express followed with 11.1, BB&T Corporation with 9.4 and PNC Financial Services with 8.7.
Out of 18 banks tested, only Ally Financial failed with a ratio of 1.5. To pass, a bank must have a ratio of at least 5.0.
Citigroup, which failed the stress test a year ago, passed this time with a ratio of 8.3. Bank of America (6.8), Goldman Sachs (5.8), J.P. Morgan (6.3), Morgan Stanley (5.7), U.S. Bancorp (8.3) and Wells Fargo (7.0) were also among those that passed.
In its theoretical severely adverse scenario, the Fed says the 18 bank holding companies tested could lose $462 billion from losses across loan portfolios, losses on securities held in their investment portfolios, trading and counterparty credit losses from global market shock and other losses.
The Fed was mandated to conduct annual stress tests of American banks via the Dodd-Frank Act following the financial crisis to determine their financial strength. Banks have been increasing their capitalizations in the years since the crisis as a buffer against potential future losses.
Yet critics have said the tests are too easy and underestimate systemic risk.
(CG)