Nearly all banks weather Fed stress tests

Nearly all of the nation’s biggest banks are well-positioned to survive another harsh economic downturn, as the Federal Reserve released the results of its latest “stress tests” on Wall Street giants.

The central bank said Thursday that 29 of the 30 banks tested would survive a severe downturn while maintaining an adequate amount of top-tier capital to weather the storm. Only Zions Bancorp saw losses dip below the 5 percent requirement for tier 1 common capital required by the Fed.

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The Fed subjected the bank’s books to a severe hypothetical economic downturn, including a sharp jump in the unemployment rate, a loss of 50 percent of value in the stock market, and the collapse of housing prices to 2001 levels.

Under that situation, the banks tested would post a top-shelf capital ratio of 7.6 percent. At the beginning of 2009, during the worst parts of the financial crisis, banks posted just a 5.5 percent ratio.

All told, banks would lose $501 billion under that scenario, but capital ratios suggest they would stay afloat. Under a more modest hypothetical scenario, the Fed found the capital ratio would fall to 9.7 percent.

"The annual stress test is one of the Federal Reserve's most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions," said Fed Gov. Daniel K. Tarullo. "Each year we are making substantial improvements, which have helped make the process even stronger than when we first conducted the stress tests in the midst of the financial crisis five years ago."

In addition to the severe economic circumstances posed by the stress test, the Fed also tested the eight big banks heavily involved in trading activities if their largest counterparty were to suddenly and unexpectedly default.

This year’s stress test, the fourth of its kind, included a larger number of banks than in previous rounds. The Fed included 12 additional, smaller banks in this year’s test, after testing the 18 largest and most active banks since 2009.