Federal Reserve: US Banks Passed Stress Test

Seeking to provide some regulatory relief to community banks and other small financial institutions bank regulators are asking Congress to consider several changes to the 2010 Dodd Frank financial reform laws. Full credit Megan Pendergrass  CNNMoney

WASHINGTON-The largest US banks survived a hypothetical "stress test" and could continue lending even during a deep recession, the Federal Reserve said Thursday, a strong report card that could bolster the industry's case for cutting back regulation.

The tests have become less dramatic in recent years with fewer quantitative failures. Passing the stress test does not necessarily mean a lender will pass the CCAR as the PhDs at the Fed can approve or flunk a bank based on qualitative as well as quantitative grounds.

The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a United States unit of the troubled German financial giant.

The tests are conducted under the 2010 Dodd-Frank financial reform laws, which Congress enacted in the wake of the 2008 global financial crisis - and which President Donald Trump has vowed to scale back. The Fed compiles its own projections of losses and incomes for each bank.

"This year's results show that, even during a severe recession, our large banks would remain well capitalised", governor Jerome H. Powell said.

For the third year in a row, all the banks maintained capital levels above the minimum the Fed requires. The disclosure includes stress test results for KeyCorp and KeyBank, but does not take into account any capital actions Key may have requested under the Federal Reserve's 2017 Comprehensive Capital Analysis and Review process ("CCAR").

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A second, more closely watched component is due next week.

Almost nine years on, banking industry profits have been steadily rising and banks have been lending more freely.

Some analysts have questioned whether the Fed might flag Wells Fargo in the latter exam this year after regulators found its employees may have opened more than 2 million accounts without customers' approval.

But for the most part, the stress tests have been getting less stressful. It was the first time the tests showed losses from credit card loans rising to an equal level with losses from commercial and industrial loans, the Fed said.

"Lending has expanded overall by the banking system, and also to small businesses", Federal Reserve Chair Janet Yellen said in February. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank".

FILE - This Monday, July 18, 2016, file photo shows the top of a Bank of America ATM booth, in Woburn, Mass.

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