Biggest Banks Clear Their First Hurdle in Fed’s Stress Tests
By Jesse Hamilton, Dakin Campbell, and Yalman Onaran
Thirty-four of the largest banks operating in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks, showing firms are getting the hang of the once-dreaded reviews — a trend that may continue if the Trump administration dials them back. Every bank subject to the annual tests’ first phase exceeded minimum thresholds, though Morgan Stanley trailed the rest of Wall Street on a key measure of leverage — the second year it performed worse than peers on one of the main metrics. Last year, during a second phase examining proposals to pay out capital to shareholders, the bank was forced to resubmit its plan to address a “material weakness.” Results from that round are due next week…There are risks if the Fed is too aggressive. Strong numbers show banks have learned how to position their portfolios to pass tests, and not necessarily lend as much as possible, said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. And by subjecting banks to the same model, the regulator might push them into businesses that turn out to be perilous, she said. “If the Fed bets wrong and treats one particular trading strategy as low risk and it’s high risk, all the banks will have taken that low-risk bet and it will have turned out very badly,” she said.
https://www.bloomberg.com/news/articles/2017-06-22/biggest-banks-clear-their-first-hurdle-in-fed-s-stress-tests