Federal Reserve stress test says 29 of 30 banks could handle severe recession

By Kyle Johnson,

The Federal Reserve released the results from the first round of their stress tests and found that all but one of the country's largest banks could survive another severe economic downturn.

The one bank that failed the economic scenarios was the Salt Lake City Zions Bancorporation, the Los Angeles Times reports. The final pass/fail grades will be handed out next week after the Fed finishes its second round of stress tests that determine whether a bank has enough funds on hand should the economy collapse.

Fed Gov. Daniel K Tarrullo said, "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."

The economic scenario that the Fed looked at involved unemployment shooting back up to 11.25 percent, home prices falling 25 percent and the stock market plummeting 50 percent. The banks would lose $501 billion over a 27-month period in the scenario, out of their overall combined assets of $13.5 trillion.

According to Forbes, the Fed requires banks hit a 5 percent mark in Tier 1 capital and Zions posted a 3.5 percent. Bank of America and JPMorgan Chase were the second and third lowest banks, passing with a $6 percent and $6.3 percent, respectively.

The two banks that did the best were the Bank of New York Mellon and State Street Corporation, which got a 13.1 percent and 13.3 percent.

image courtesy of Wikimedia Commons



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