On Monday, several of the largest U.S. banks released their
mid-year stress test results required under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which reflects
stability in the banking system to a great extent. More
importantly, this reaffirms the ability of U.S. banking giants to
survive another economic meltdown.
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Notably, the mid-year stress test is different from the annual
Comprehensive Capital Analysis and Review (CCAR) process,
conducted by the Federal Reserve. This mid-cycle stress test was
performed under a hypothetical severely adverse economic scenario
assumed by the individual banks.
Wells Fargo & Company
JPMorgan Chase & Co.
Bank of America Corporation
The Goldman Sachs Group, Inc.
) were among the big banks that released their results reflecting
that minimum capital levels would remain well above regulatory
requirements during the nine-month horizon (from second quarter
2013 through second quarter 2015) of high unemployment, declining
home prices and stock-market tumult.
Banks with huge consumer and commercial-lending businesses were
also required to estimate their loan losses that would be at a
lower level during the hypothetical slump. Notably, 18 bank
holding companies that submitted their capital plan to the Fed in
Jan 2013 under the CCAR process are required to publicly unveil a
summary of the results of the company-run stress tests between
Sep 15 and Sep 30 conducted under the strictly adverse scenario.
Though results of the individual banks reflected resilience, it
is difficult to compare the results as each bank has its own
economic assumption under the mid-year Dodd-Frank stress tests.
U.S. banks are showing signs of strength despite being compelled
to meet strict regulatory standards. Though it is too early to be
confident of the sector's growth prospects, the progress seen in
the first half of 2013 indicates a brighter future for those less
dependent on risky activities and resorting to other
Improved economic data such as higher consumer spending and GDP,
improving housing market and declining unemployment rate raise
optimism. However, still the current low-rate environment is the
headwind going forward.
However, it is impressive to see that U.S. banks are taking legal
and regulatory pressure in their stride, indicating their ability
to encounter impending challenges. However, with the economy
still in disarray, we do not envision the sector returning to its
pre-recession peak anytime soon.