The Federal Reserve said 29 of the 30 largest banks subjected to a stress test have sufficient capital to withstand a deep recession while continuing to pay dividends.
Zions Bancorporation is the only lender that came in below one of the Fed’s main capital thresholds in results released Thursday by the central bank that simulated a deep recession. All 30 banks, including Salt Lake City-based Zions, exceeded the minimum in a separate scenario of rising interest rates, a sign of improved capital levels in the banking system since the 2008 financial crisis.
The largest banks “are collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago,” the Fed said in a statement while releasing data from the test required under the Dodd-Frank Act. “This result reflects continued broad improvement in their capital positions since the financial crisis.”
The Fed runs an annual two-part stress test to ensure banks have enough capital and cash to withstand shocks that may threaten their survival. The goal is to head off a recurrence of taxpayer-funded bailouts as in 2008, when government rescues averted the collapse of some of the world’s largest lenders. Firms that fail a second round of tests released next week may have to forgo stock buybacks and higher dividends.
“The annual stress test is one of the Federal Reserve’s most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions,” Daniel Tarullo, the Fed governor in charge of bank supervision and regulation, said in an email statement.
“Banks are still hoarding a lot of capital — in other words they’re generating quite a bit internally and they’re not paying it out,” R. Scott Siefers, a managing director at Sandler O’Neill + Partners LP in New York, said before the results were released. “Capital levels by and large are very, very strong.”