FRN analysis reveals financial system resilience

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Federal Reserve Board officials said financial system supervisory stress test results determined institution’s remain resilient.

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“The nation’s largest banks are significantly stronger than before the crisis and would be well-positioned to support the economy even after a severe shock,” Randal K. Quarles, Federal Reserve Board chairman, said.

The most stringent scenario was one projecting $410 billion in total losses for the 18 participating bank holding companies, featuring a global recession with the unemployment rate rising by more than 6 percentage points to 10 percent and accompanied by a large decline in real estate prices and elevated stress in corporate loan markets.

The Federal Reserve Board said capital is critical to banking organizations, the financial system, and the economy because it acts as a cushion to absorb losses and helps ensure losses are borne by shareholders.

Stress tests serve as one component of the Federal Reserve’s analysis during its annual Comprehensive Capital Analysis and Review (CCAR). The CCAR assesses the capital planning processes and capital adequacy of large bank holding companies and includes an evaluation of their planned capital distributions, such as dividend payments and share repurchases.

Smaller and less complex banks were not tested this year and are currently on a two-year cycle under the Economic Growth, Regulatory Relief and Consumer Protection Act.

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