BUSINESS

Nation's largest banks all pass Federal Reserve 'stress tests'

   Banks
   Banks
   Associated Press
   JPMorgan Chase, Citigroup, Bank of America and Wells Fargo are among
   the 33 financial institutions that participated in the test.
   JPMorgan Chase, Citigroup, Bank of America and Wells Fargo are among
   the 33 financial institutions that participated in the test.
   (Associated Press)
   Associated Press

   The U.S.’ largest financial institutions have enough armor to withstand
   the turmoil of a major and prolonged U.S. and global recession, the
   Federal Reserve said Thursday.

   The annual “stress tests” show that the 33 largest financial
   institutions, including JPMorgan Chase, Citigroup, Bank of America and
   Wells Fargo, all hold more capital than they did the year before. They
   also hold enough capital that, even if faced with billions of dollars
   in losses from loans as a result of an economic crisis, they would
   continue to function.

   The stress tests were created in the wake of last decade’s financial
   crisis and the subsequent Great Recession. The implosion of the housing
   market led the U.S. into its worse economic period since the Great
   Depression. Several large banks failed or were bought in to rescue
   operations. The losses were so great that U.S. taxpayers had to come to
   the rescue at a cost of $700 billion.

   To keep this from happening again, Congress passed the Dodd-Frank
   financial reform laws in 2010. The law mandated that the nation's
   largest banks simplify their structure and raise more capital, and that
   the nation's bank regulators had to routinely monitor and test to make
   sure banks could withstand even the worst possible outcomes.
   House Republican unveils plan to overhaul Dodd-Frank financial reform
   law
   House Republican unveils plan to overhaul Dodd-Frank financial reform
   law
   Jim Puzzanghera

   A top House Republican on Tuesday unveiled a sweeping plan to replace
   the Dodd-Frank financial reform law, which has been fiercely criticized
   as overly burdensome by GOP lawmakers and Wall Street executives.

   Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services
   Committee, called...

   A top House Republican on Tuesday unveiled a sweeping plan to replace
   the Dodd-Frank financial reform law, which has been fiercely criticized
   as overly burdensome by GOP lawmakers and Wall Street executives.

   Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services
   Committee, called...
   (Jim Puzzanghera)

   This is the sixth round of stress tests the Fed has done.

   Under the Fed's most extreme scenario in this year's test, the U.S.
   economy falls into a deep recession causing the stock market to plunge
   50%. Unemployment climbs above 10%, housing prices drop 25% and
   commercial real estate prices fall 30%. Investors, in this scenario,
   would be so panicked that yields on short-term U.S. Treasuries would go
   negative — meaning even the safest of assets would still lose money.

   Fed officials change the stress tests each year to mirror the world’s
   current economic climate. Other central banks, including the European
   Central Bank and Bank of Japan, have attempted negative interest
   rates to stimulate economic growth. So testing the largest U.S.
   financial institutions under negative interest rates is not outside the
   realm of possibility.

   The Fed said that the nation's 33 largest financial institutions would
   have $526 billion in loan losses under the most extreme scenario.

   Thursday's announcement is one of two announcements by the Fed
   regarding the stress tests. The more important announcement comes next
   week, when the Fed will release the results for each of the individual
   banks. If the banks pass, they will be allowed to raise their quarterly
   dividends and buy back shares.
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