The results of the Fed's stress tests are out and 31 out of 31 banks passed, including Citigroup, a feat no one thought the bank would accomplish, probably including the guy who was brought out of retirement to make it happen. And yet it did! Sort of! Citi still has to wait until next week to find out if it's truly in the clear, but for now Mike Corbat can breathe easy and unpack the pens and potted plants he had preemptively placed in a banker's box, just in case.
The Fed’s annual “stress test” of banks’ financial health found all 31 of the biggest U.S. banks had enough capital to continue lending during a hypothetical economic shock where corporate debt markets deteriorate, unemployment hits 10% and housing and stock prices plunge. The exams are designed to ensure large banks can withstand severe losses during times of market turmoil without a taxpayer bailout. It was the first time since the tests began in 2009 that all banks maintained capital levels above what the Fed views as a minimum allowance...Thursday’s test results don’t take into account banks’ requests to return more capital to shareholders in 2015 and beyond, instead assuming that the banks maintain existing payout levels. Next week’s results will incorporate banks’ plans to pay dividends or purchase shares, moves that will likely lower their capital ratios below Thursday’s results. That could prove problematic for banks whose capital ratios came close to the Fed’s minimum allowance on Thursday, since a payout could further deplete that capital buffer.