18 Leading U.S. Banks Pass Annual Stress Test By The Fed

18 banks faced the annual stress test held by the Fed. All banks have won approval on the capital plans submitted, by which they can increase shareholder payout.

Firms like Bank of America, JPMorgan Chase and many others have got approval for share buybacks and to boost dividends.

The stress test that is held annually had 18 big institutions in the U.S. participating in the test. The stress test is held so that banks can prove that they have the ability to survive during times of economic slowdown and make loans and meet dividend payments.

This test is based on the capital of the bank and the difference between its assets and liabilities.

However, Credit Suisse was not able to meet the terms and has got a conditional non-objection. The Fed has asked the European Bank to fix certain issues in its capital plan. It will revisit the plan again in four month’s time.

Capital One and JPMorgan were able to clear the test only after both of them had pared back plans.

Deutsche Bank was unable to clear the test last year but sailed through the test easily this year.

The annual review has been going on from 2009. None of the banks have failed the Fed stress test this year. This is the second time that all banks have cleared the tests.

By passing the stress test, banks have shown their resilience to financial disasters. This is completely different from the scenario of the banking industry a decade ago, during the downturn.

The vice chair for supervision Randal Quarles states that by clearing the stress tests large banks have shown good capital planning practices. They show that they are well capitalized, he says.

The tests conducted this week are considered important because they include plans to pay back capital to shareholders as well as to maintain cash levels to meet a huge economic meltdown.