Bank of America, Wells Fargo and 27 other major U.S. lenders would meet federal capital requirements in a hypothetical economic crisis, according to “stress test” results released Thursday.
Charlotte-based Bank of America, however, posted the lowest minimum capital ratio among big banks.
The annual health check, mandated by the Dodd-Frank Act, measures whether large bank holding companies have enough capital set aside to withstand losses from a major downturn.
The Fed looked at how capital levels would fare in a deep recession accompanied by a sharp rise in unemployment, a 50 percent drop in the stock market and a 25 percent decline in home prices. Under that scenario, the Fed projected loan losses at the 30 bank holding companies would total $366 billion over a nine-quarter period.
This year’s test results show Bank of America and BB&T’s capital levels – measured as a ratio of top-quality capital to assets weighted by risk – bottoming out at a lower level than they reported a year ago under a “severely adverse” scenario, while Wells Fargo’s would be higher. Bank of America’s minimum capital ratio of 6 percent was the lowest among the top five U.S. banks.
Only one bank failed to meet the minimum 5 percent capital buffer under the scenario. That bank is Utah-based Zions Bancorporation, which does not have branches in North Carolina.
Investors are next waiting to learn whether the Fed will approve banks’ plans to return capital to shareholders, such as by raising dividends or buying back stocks. The Fed’s assessments of such plans are expected to be released Wednesday.
“Capital is important to banking organizations, the financial system and the economy broadly because it acts as a cushion to absorb losses and helps to ensure that losses are borne by shareholders, not taxpayers,” the Fed said in a press release Thursday.
The latest stress tests results show that major 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. “This result reflects continued broad improvement in their capital positions since the financial crisis.”
This is the fourth year the Fed has conducted the stress tests. This year, 30 companies with $50 billion or more in assets apiece participated in the stress tests, up from 18 companies last year.
Comparing test results from one year to the next is difficult, because the Fed changes the scenarios under which it evaluates banks.
Will BofA raise dividend?
For Bank of America, investors will be looking to see whether its 1-cent dividend will be increased.
The only time Bank of America has asked the Fed for a dividend increase since the crisis was in 2011. The Fed rejected that request. Bank of America’s dividend remains below that of peer banks, such as Wells Fargo, which last year won Fed approval for an increase to 30 cents per share from 25 cents.
After the Fed signed off on its capital plan last year, Bank of America said it would repurchase up to $5 billion of common stock and redeem about $5.5 billion in preferred stock.
Bank of America hasn’t said whether it will seek to raise its dividend this year.
Bank of America and Wells Fargo released results of their own company-run stress tests Thursday. Both banks projected higher minimum capital buffers than the Fed’s tests showed.
Roberts: 704-358-5248; Twitter: @DeonERoberts
The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.
Have a news tip? You can send it to a local news editor; email email@example.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.Read moreRead less