Largest US banks pass Fed stress tests

By FinancialsFOXBusiness

Fed's Powell praises US economy

Wall Street Journal Editorial Page Assistant Editor James Freeman on Federal Reserve Chairman Jerome Powell's assessment of the economy.

The 35 largest U.S. banks have enough capital to survive a severe economic downturn, according to the Federal Reserve’s annual stress tests.

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The central bank said Thursday the financial institutions were “strongly capitalized” and would be able to continue lending to households and businesses during a global recession.

Under a hypothetical scenario in which banks lose $578 billion over the course of nine quarters—the most severe scenario used in any of the Fed’s stress tests—banks would be left with capital levels that are higher than actual levels seen in the years leading up to the 2008 financial crisis, Vice Chairman for Supervision Randal K. Quarles said in a news release.

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The test results come as the financial industry benefits from record profits and efforts by Congress and the Trump administration to roll back federal regulations. Volatility in the stock market has also served as a boon to investment banks such as Goldman Sachs and Morgan Stanley this year.

The Fed uses the stress tests to help determine how much capital it will allow banks to return to shareholders. A second round of test results are scheduled to be released next Thursday. Last year, all banks passed the second leg and received approval for their dividend plans.

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