March 14, 2012- The Federal Reserve was pleased to see that the majority of banks passed their latest stress tests. On Tuesday, the Federal Reserve announced that 15 of the 19 larger financial firms had sufficient capital to make it through a difficult recession. The results were announced 48 hours early and helped pave the way for banks buy back some shares and increase dividends.
A senior financial analysts said, “When the Fed puts banks under difficult scenarios and they still do well, it shows how well the banks have recapitalized coming out of the severe downturn.”
However, the latest tests also show how uneven the industry’s recovery really is. Big, strong firms such as Wells Fargo and JPMorgan have proved to be resilient. They have cleaned up their ledgers as the economy has improved. Other however, such as Ally Financial and Citigroup continue on shaky footing. They are faced with bad mortgages and troubled businesses.
This is the third round of stress tests that were developed following the financial crisis. The current tests are intended to assess a bank’s strength during weak economic downturns. The Fed wanted to see if banks had enough capital to withstand a peak in unemployment of 13%, a drop in housing prices of 21% and severe shocks in the market.