Credit Suisse was the only Wall Street firm that did not sail through the Federal Reserve's annual stress test, as competitors of J.P. Morgan Chase of Bank of America received approval to increase dividends and share buybacks.
The US division of Zurich-based Credit Suisse needs to fix issues Fed found in its capital planning processes by October 27, according to the Federal Reserve. Specifically, the Fed found weaknesses in assumptions that the bank made for trading losses under a stressed scenario. Credit Suisse must keep the capital allocation at the 2018 level until it meets the Fed.
In this year's version of the regulator's annual ritual, 1[ads1]8 of the largest US institutions had to show that they can survive a financial downturn while maintaining the ability to make loans and continue to pay dividends. It depends on the bank's capital, or the difference between assets and liabilities, which acts as a pad to absorb losses.
Except for Credit Suisse, all banks won approval to increase shareholder payments according to the capital plans they submitted. Credit Suisse received a conditional non-objection, which is the same term as Goldman Sachs and Morgan Stanley received last year. In 2018, the two US investment banks fell below the minimum capital level under a stressed scenario.
Nevertheless, no bank failed the 2019 round in Fed's stress test, the second time it happened since it began annual review in 2009. (The term given to Credit Suisse is a kind of space between passing and not passing.)
And generally, the results show a robust banking industry compared to the depths of the financial crisis a decade ago, when the US had to outlaw lenders. The industry has strengthened its plan to plan for worst-case scenarios and more than doubled its capital to absorb losses to about $ 800 billion, according to the Fed.
"The stress tests have confirmed that the largest banks are both well capitalized and put high priority on strong capital planning practices," said Randal Quarles, deputy head of audit, in a statement. "The results show that these companies and our financial system are resistant in normal times and under stress. "
Another managed company, Deutsche Bank, passed this year's stress test after failing last year. The US division of Deutsche Bank has made progress in solving its problems related to data management and revenue and loss forecasts. According to a senior Fed official,
JP Morgan and Capital One reined in their initial capital plans by submitting their payout plans, using a so-called mulligan to keep the necessary minimum, according to Fed official.