Fed is requiring all 34 big banks that participated in the exercise to resubmit capital plans, seeking to ensure they have enough loss-absorbing capital to keep lending during pandemic.
“For the first time in the ten years we have been doing stress testing, we are exercising the option that has always been in our capital framework of requiring all large banks to reassess their capital needs,” Fed regulatory chief Randal Quarles said in a statement. “The Board will use this information to make a further assessment of the banks’ financial conditions and risks.” The stress tests, known as the Comprehensive Capital Analysis and Review, examine every year whether the largest banks would be able to weather rough economic headwinds with sufficient capital, based on hypothetical recession scenarios. “The banking system has been a source of strength during this crisis,” Quarles said, “and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.” As in previous years, the Fed announced how individual banks had fared under the hypothetical recession scenario, devised before the coronavirus pandemic led to lockdowns across the country. Under a “V-shaped recovery” envisioned by the Fed, banks’ core capital ratios remain “well above” the minimum 4.5 percent requirement, with the 25th percentile coming in at 7.5 percent. “However, under the U-shaped or W-shaped alternative downside scenarios, a number of firms could experience significant capital depletion and several would approach minimum capital requirements,” the Fed said.