Global Finance: Banks: Capital Ratios Can Weather Downturn
The largest U.S. banks say they would be able to weather a severe economic crisis with higher capital levels than previously estimated, bolstering the notion that financial institutions have made headway in their quest to minimize risk and shore up their balance sheets.</br></br>J.P. Morgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. were among big banks that released results Monday of company-run reviews showing their minimum capital levels would remain well above regulatory requirements during several quarters of high unemployment, falling home prices and stock-market turmoil.</br></br>The "midyear stress tests" are required under the Dodd-Frank Act, which called on large banks to perform regular analyses of whether they could remain adequately capitalized if another financial crisis were to occur. Financial institutions with large consumer- and commercial-lending businesses also projected their loan losses would be lower during a hypothetical downturn than previous estimates.</br></br>Eugene Ludwig, a former comptroller of the currency and now chief executive officer of Promontory Financial Group, a consulting firm that advises banks on regulatory and financial matters, said the results weren't particularly surprising "given the evolution of the [economic] cycle."</br></br>Eighteen large banks released results from an initial round of the Dodd-Frank stress tests in March and were required to release the results of a midyear test between Sept. 15 and Sept. 30. The tests, based on banks' own internally developed scenarios, are separate from stress tests performed by the Federal Reserve each year, called the Comprehensive Capital Analysis and Review, or CCAR.