Fed to test six big U.S. banks for Euro stress

By Karey Wutkowski and Dave Clarke

The U.S. Federal Reserve plans to stress test six large U.S. banks against a hypothetical market shock, including a deterioration of the European debt crisis, as part of an annual review of bank health. The Fed said it will publish next year the results of the tests for six banks that have large trading operations: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. “They are clearly worried about the issue of Europe,” said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. “In a time of risk aversion and concern, you need transparency.”The banks must submit their capital plans by January 9, 2012. The Fed said that it plans to respond to banks by March 15. It was not clear when the results would be published. “I don’t think anyone could say that this is anything but an extremely stringent stress test,” said Karen Petrou, managing partner of Federal Financial Analytics. “It will really put the burden on the affected bank holding companies to prove they can make a capital distribution, not on the Fed to block it.”