The central banking system said the US banks would continue to meet supervisory expectations for capital adequacy despite large projected losses in an extremely adverse hypothetical economic scenario.
In its report, the Comprehensive Capital Analysis and Review (CCAR), the Federal Reserve said it has evaluated the banks’ financial conditions, capital planning processes and capital adequacy of the largest bank holding companies.
The government agency, by conducting the stress test ensures that firms meet sufficient capital in times of severe economic and financial stress to continue to lend to households and businesses.
The prominent banks in the US, who participated in the test, include Citigroup, Bank of America Corp. (BAC), Wells Fargo, Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and JPMorgan Chase.
Citi failed to qualify the test, while JP Morgan, Wells Fargo and other large bank holding companies passed the test.
Despite the significant projected capital declines, 15 of the 19 bank holding companies were estimated to maintain capital ratios above all four of the regulatory minimum levels under the hypothetical stress scenario.
Strong capital levels are critical to ensuring that banking organizations have the ability to lend and to continue to meet their financial obligations, even in times of economic difficulty, said Federal Reserve.
