WASHINGTON: The largest US banks would withstand a severe recession and still be able to lend to American households and businesses, the Federal Reserve announced on Thursday.

The results of the first part of the central bank’s so-called stress tests showed 34 major lenders were on solid capital footing, the Fed said.

The tests are conducted under the 2010 Dodd-Frank financial reform laws, which Congress enacted in the wake of the 2008 global financial crisis — and which President Donald Trump has vowed to scale back.

“This year’s results show that, even during a severe recession, our large banks would remain well capitalised,” Fed Governor Jerome Powell said in a statement.

“This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.” The results portrayed a picture of increasing resilience in the banking sector, with the 34 participating firms having added $750 billion in common equity capital since 2009.

The most severe hypothetical scenario imposed by the Fed supposed a global economic downturn even worse than the recent Great Recession.

US unemployment would rise to 10 percent, accompanied by a 35 percent drop in commercial real estate prices and pressures on corporate loan markets as well.

In this scenario, loan losses would amount to $383 billion over nine quarters. The ratio of capital, which allows lenders to absorb losses, to risk-weighted assets would drop from 12.5 percent to 9.2 percent.

The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a US unit of the troubled German financial giant.

The participating banks represent more than 75 percent of the assets of all domestic bank holding companies, according to the Fed.

Published in Dawn, June 24th, 2017

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...
New terror wave
Updated 27 Mar, 2024

New terror wave

The time has come for decisive government action against militancy.
Development costs
27 Mar, 2024

Development costs

A HEFTY escalation of 30pc in the cost of ongoing federal development schemes is one of the many decisions where the...
Aitchison controversy
Updated 27 Mar, 2024

Aitchison controversy

It is hoped that higher authorities realise that politics and nepotism have no place in schools.