The Federal Reserve said 15 of the 19 largest U.S. banks could maintain adequate capital levels even in a recession scenario in which they continue paying dividends and buy back stock.
Today’s results show that nearly three years of economic expansion have helped U.S. banks raise profits, rebuild capital, and increase liquidity after the collapse of Lehman Brothers Holdings Inc. in 2008 nearly toppled the financial system.
“It is night and day,” Jason Goldberg, senior analyst at Barclays Capital Inc. in New York, said before the announcement. “In 2009, about half the banks failed the stress test. The industry’s capital position is higher today, and better quality. There is a lot less leverage.”
JPMorgan Chase & Co. (JPM), in an announcement before the Fed’s release, said it would raise its dividend 20 percent and authorized a $15 billion share repurchase plan after the central bank tested its capital.
The Fed said an unemployment rate of 13 percent, a 50 percent drop in stock prices and a 21 percent decline in house prices under the stress scenario would produce aggregate losses of $534 billion over nine quarters.
Even with that blow, the 19 banks would see their tier one common capital ratio -- a measure of bank strength against loss -- fall to 6.3 percent in the fourth quarter of 2013 in the hypothetical scenario, above the 5 percent minimum the Fed required. The ratio was 10.1 percent in the third quarter of last year.
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