Stress Tests Show How Fed Pushed on Balance Sheets
By Craig Torres, Cheyenne Hopkins and Ian Katz
The resilience of the largest U.S. financial firms when tested against a recession more severe than the last one shows regulators have succeeded in pushing banks to build fortress-like balance sheets. The Fed yesterday said 15 of 19 banks would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario, even while continuing to pay dividends and repurchasing stock. Those results were due to scrutiny by the Fed on capital payouts over the past three years, the central bank said. Regulators, empowered by the Dodd-Frank Act and goaded by criticism for failing to spot the subprime mortgage debacle, have redesigned their approach to bank supervision. They now place greater emphasis on systemic risk as they seek to avoid a repeat of the crisis that resulted in a $245 billion taxpayer bailout of banks through the Troubled Asset Relief Program. “Any bank that remains adequately capitalized under these acute stress scenarios is not just strong but also darn-near impregnable,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm, whose clients have included Wells Fargo & Co. (WFC) “What’s a bank for is at the heart of this question: Is it to be Fort Knox?”