Although the banks, including household names like JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N), would suffer $383 billion (£302 billion) in loan losses in the Fed's most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year's level. The 34 bank holding companies tested-generally those with $50 billion or more in total consolidated assets-represent more than 75 percent of the assets of all domestic bank holding companies.
This is the seventh year in a row the Fed has run stress tests, which were put in place after the financial crisis.
"The nation's largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession", said the Fed in a statement on Thursday. Since 2009, the 34 firms have added more than $750 billion in common equity capital.
Fed Governor Powell said recently that regulators will share more information with the industry during next year's exams after bankers complained the process was too opaque.
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The latest downturn scenario includes: the USA unemployment rate peaking at 10 percent in the third quarter of 2018 - up from 4.3 percent in May; a 49.7 percent decline in the Dow Jones Industrial Average; a decline in home prices of 25.7 percent and a 34 percent decline in commercial real-estate prices, both between now and December 31, 2018; an increase in 30-year mortgage rates to 4.6 percent; and an inflation rate of 1.4 percent in 2017 and 1.8 percent in 2018. That measure, called the tier-one capital ratio, was exceeded by all 34 banks.
The two-part test revealed that the biggest United States lenders would be hit by $383bn in loan losses in a hypothetical scenario in which the U.S. employment rate rose to 10 per cent.
Each year, regulators tweak the exam to keep banks on their toes.
The CCAR results could affect banks' buyback and dividend plans. 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. "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".
That means even if a bank passed a year ago, there's no guarantee it will do so again.