Banks prepare for round two of stress tests
By Annie Baxter
Each year, the Federal Reserve puts the nation’s biggest banks through stress tests. It wants to make sure they can keep lending even in scenarios where home prices plummet and unemployment spikes. Thirty-one banks passed a round of tests last week. “The results last week were purely quantitative. How the banks do under each of the scenarios,” says Karen Petrou, managing director with Federal Financial Analytics. The next round takes a more qualitative look at the individual banks and their capital planning—how they plan to distribute capital to shareholders through, say, dividends, and whether that leaves them with enough of a capital buffer to cover potential losses. Petrou says some banks might fail this time.
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