Federal Reserve Restart Large Banks Stress Test
- By Himfr Tian
- Published January 23rd, 2012
- Business
- Unrated
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In order to strengthen the supervision of large financial institutions, the U.S. Federal Reserve Board on November 17 issued guidance, require the most severe financial crisis during the accepted "stress test" of the 19 large bank holding companies in the January 7, 2011 before submit with "stress test" framework "capital plan."
The program aims to measure the absorption loss of the next two years, banks ability to meet the requirements of Basel II Ⅲ, and the return of U.S. government investment plan.
Stressed the bank's capital adequacy ratio and buffering capacity
The Fed said that these big banks need to set the Fed on economic conditions and continued deterioration of real estate a series of "negative" hypothesis and again on their capital position to assess the ability to withstand losses.
As "strengthen the bank's supervisory capacity" part of the Federal Reserve also plans to conduct such assessments on a regular basis.
With other banks and regulatory institutions, since the financial crisis, the Fed did not once criticized the large financial institutions find and remediation problems, but also to curb risky behavior of Wall Street's poor. Thus in July of this year, the U.S. Congress passed the financial regulatory reform bill includes a series of rules to curb the risks of banks.
The guidance stresses the day, major financial institutions of any capital distribution plan must be evaluated according to a set of requirements.
First, the company must prove they have adequate capital to absorb losses. Testing will include these companies in the next 2 years under different scenarios in the ability to absorb losses, including adverse macro-economic scenario the Fed, and designated specific portfolio company's business model and the negative scenarios.
Secondly, it must prove that they have the ability to meet the increased capital adequacy ratio after the requirements in order to increase dividends. The Fed said the program should be distributed in the capital and financial regulatory reform bill, and the Consumer Protection Act on the company's business model or capita
l adequacy ratio of impact scenarios to assess how companies meet the Basel II capital requirements Ⅲ.
In addition, how these companies plan to invest the return of the U.S. government is also assessing the list. Bank holding company will be preferred or common shares is expected to return or replace the way of investment in the United States Government, after the repurchase of shares by way of higher dividends or increased capital expenditure.
The same day, the Federal Reserve also released for want of a dividend or buy back stock to improve the bank plans to require these banks must first be able to withstand the next 2 years with the loss of buffering capacity of the capital, and proved itself to meet new, more stringent global capital requirements in order to improve the dividend or repurchase shares.
To calmly deal with banks or
In early 2009, the U.S. Treasury, Federal Reserve and other regulatory agencies organized for more than 100 billion U.S. dollars of assets in large banks the "stress test" to test these financial institutions to address the financial crisis. At that time the test results revealed that the 19 banks in 2 years is facing the loss of a total of $ 599,000,000,000. 9 banks to pass the test, but including Bank of America and Citigroup, including 10 banks need to raise capital cushion, the total financing of about 750 billion U.S. dollars.
Some bankers believe that this stress test will not be like last time and effort, because most of the banks that they have done similar tests, and have taken several measures to improve bank soundness. Those with large credit card business of banks have also taken measures to curb lending. For example, in the third quarter, American Express has a 57 billion U.S. dollars in outstanding loans, compared to the end of 2008 to reduce the full 72 billion U.S. dollars. JP Morgan Chase bank cards are also in the past year the class will be reduced by 15% of the portfolio is about.
But the difference is, the new stress test results will not be made public.
More stringent regulatory environment so that many U.S. financial institutions started to worry and complain, especially small banks. In the current economic recovery of the critical moment, these small financial institutions, lending is becoming increasingly difficult.
The program aims to measure the absorption loss of the next two years, banks ability to meet the requirements of Basel II Ⅲ, and the return of U.S. government investment plan.
Stressed the bank's capital adequacy ratio and buffering capacity
The Fed said that these big banks need to set the Fed on economic conditions and continued deterioration of real estate a series of "negative" hypothesis and again on their capital position to assess the ability to withstand losses.
As "strengthen the bank's supervisory capacity" part of the Federal Reserve also plans to conduct such assessments on a regular basis.
With other banks and regulatory institutions, since the financial crisis, the Fed did not once criticized the large financial institutions find and remediation problems, but also to curb risky behavior of Wall Street's poor. Thus in July of this year, the U.S. Congress passed the financial regulatory reform bill includes a series of rules to curb the risks of banks.
The guidance stresses the day, major financial institutions of any capital distribution plan must be evaluated according to a set of requirements.
First, the company must prove they have adequate capital to absorb losses. Testing will include these companies in the next 2 years under different scenarios in the ability to absorb losses, including adverse macro-economic scenario the Fed, and designated specific portfolio company's business model and the negative scenarios.
Secondly, it must prove that they have the ability to meet the increased capital adequacy ratio after the requirements in order to increase dividends. The Fed said the program should be distributed in the capital and financial regulatory reform bill, and the Consumer Protection Act on the company's business model or capita
In addition, how these companies plan to invest the return of the U.S. government is also assessing the list. Bank holding company will be preferred or common shares is expected to return or replace the way of investment in the United States Government, after the repurchase of shares by way of higher dividends or increased capital expenditure.
The same day, the Federal Reserve also released for want of a dividend or buy back stock to improve the bank plans to require these banks must first be able to withstand the next 2 years with the loss of buffering capacity of the capital, and proved itself to meet new, more stringent global capital requirements in order to improve the dividend or repurchase shares.
To calmly deal with banks or
In early 2009, the U.S. Treasury, Federal Reserve and other regulatory agencies organized for more than 100 billion U.S. dollars of assets in large banks the "stress test" to test these financial institutions to address the financial crisis. At that time the test results revealed that the 19 banks in 2 years is facing the loss of a total of $ 599,000,000,000. 9 banks to pass the test, but including Bank of America and Citigroup, including 10 banks need to raise capital cushion, the total financing of about 750 billion U.S. dollars.
Some bankers believe that this stress test will not be like last time and effort, because most of the banks that they have done similar tests, and have taken several measures to improve bank soundness. Those with large credit card business of banks have also taken measures to curb lending. For example, in the third quarter, American Express has a 57 billion U.S. dollars in outstanding loans, compared to the end of 2008 to reduce the full 72 billion U.S. dollars. JP Morgan Chase bank cards are also in the past year the class will be reduced by 15% of the portfolio is about.
But the difference is, the new stress test results will not be made public.
More stringent regulatory environment so that many U.S. financial institutions started to worry and complain, especially small banks. In the current economic recovery of the critical moment, these small financial institutions, lending is becoming increasingly difficult.
Written by Himfr Tian
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