17 of 18 biggest US lenders able to withstand downturn

WASHINGTON: The biggest US banks have enough capital to withstand a severe economic downturn, the Federal Reserve said on Thursday, with all but one passing the annual health check of the financial sector.

Banks' efforts to boost their capital since the 2007-2009 US financial crisis helped all 18 participating lenders except Ally Financial meet the minimum hurdle of a five per cent capital buffer in the Fed's "stress test".

The tests give regulators a view into how the banking sector would respond to a severe recession. The firms in the test represent more than 70 per cent of total bank holding company assets in the US, a senior Fed official said.

"The nation's largest bank holding companies... are collectively in a much stronger capital position than before the financial crisis," the Fed said in a statement.

Of the four largest US banks, Bank of America, Wells Fargo and Citigroup saw improvements in their minimum Tier 1 common capital ratios, compared to last year's similar test. JPMorgan Chase held steady at 6.3 per cent.

Citigroup had the highest ratio of the top four at 8.3 per cent.

Two Wall Street banks, Morgan Stanley at 5.7 per cent and Goldman Sachs at 5.8 per cent, showed the two lowest outcomes above the five per cent threshold. The two saw big losses related to trading positions and counterparty credit. The Fed only analysed that specific risk for the six banks with large trading operations.

Stress testing has become a central part of US regulators' efforts to shore up the financial sector after the crisis. The 2010 Dodd-Frank financial oversight law called for the tests to ensure banks have big enough capital cushions to survive a severe recession or other market jolt.

Regulators will use the tests to determine whether banks can start returning money to shareholders in the form of dividends or share buybacks. Reuters