Most large U.S. banks would meet the Federal Reserve’s capital standards if the economy took a serious turn for the worst, the regulator announced Tuesday. But four of the banks -- including Citigroup, Ally Financial and SunTrust -- that underwent the Fed’s annual stress tests would not have sufficient capital ratios under the central bank’s hypothetical adverse scenario.
The test, known as the Comprehensive Capital Analysis and Review, measure the ability of 19 of the country's largest banks to withstand a severe recession in the United States, with a peak unemployment rate of 13 percent, equity prices falling by half, and a 21 percent decline in home prices. Banks that fail to meet the Fed's capital requirements under that scenario will be required to raise their capital levels.
The Fed was careful to point out that the hypothetical scenario did not constitute a projection. “It's important to note that the Federal Reserve's stress scenario estimates are the outcome of deliberately stringent and conservative assessments under hypothetical, adverse economic conditions and the results are not forecasts or expected outcomes,” the central bank said.
The Fed released projected capital ratios, revenues and losses under that scenario for 19 banks. Although the Fed conducts the tests every year, this is the first round of results that have been publicly released since 2009, CNBC reports.
The results of the tests were originally set to be released on Thursday, but the Fed announced Tuesday that they would be releasing the tests two days early after J.P. Morgan Chase & Co. disclosed its results early, The Wall Street Journal reports.
Earlier Tuesday, the Fed announced that it would maintain its current policy stance but issued a slightly rosier outlook for the economy.
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