Biggest US banks clear first hurdle in Fed's annual stress tests

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On Thursday, the Federal Reserve will release the results of round one of its "stress tests", which determine whether banks are financially strong enough to weather a severe recession.

CIT was added this year to the banks tested by the Fed. This year's results are all the more consequential seeing as they're the last stress tests banks will ever have to face now that we live in Trump's America.

Trump has promised to undo various restrictions on financial firms that were put into place after the 2008 financial crisis, including the 2010 Dodd-Frank Act.

Wells Fargo & Co's US$7.7 billion in trading and counterparty losses came close to firms with larger Wall Street operations, with Morgan Stanley at US$9.5 billion.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Federal Reserve Governor Jerome Powell said in a statement. It was the third straight year that the Fed rejected the plan of the US division of Santander, which is one of Europe's biggest banks, and the second straight rejection for Deutsche Bank Trust Corp., the USA transaction bank and wealth management business of Germany's largest bank.

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The Comprehensive Capital Analysis and Review (CCAR) is an annual exercise to evaluate the capital planning process and capital adequacy of large banks.

Next week, banks will learn whether the Fed is blocking or approving its plans to buy back stock or pay dividends to shareholders.

Almost nine years on, banking industry profits have been steadily rising and banks have been lending more freely. With the Dodd-Frank results in hand, now banks have the option of revising their capital plans before CCAR is released.

It's the third consecutive year there have been no banks failing.

But for the most part, the stress tests have been getting less stressful. Specifically, the tests will feature a sample portfolio to show how certain assets would be affected by the Fed's invented crisis, he said. It was the first time the tests showed losses from credit card loans rising to an equal level with losses from commercial and industrial loans, the Fed said. That component assesses how firms plan for managing capital and risk. Regulators also want to test each bank's ability to guard against potential financial shocks. And by subjecting banks to the same model, the regulator might push them into businesses that turn out to be perilous, she said.