The Federal Reserve Board launched into its stress testing program on Friday, which includes capital analysis of 19 financial firms.
The Federal Reserves expects to release the scenarios on Nov. 15.
The aim of the annual review is to make sure baking institutions maintain forward-looking capital planning processes in place for potential times of economic and financial downturn. Institutions are expected to have creditable plans showing they are robust enough to continue lending to households and businesses under economic duress.
More importantly, the institutions are expected to meet the standards implemented by Basel III. However, federal regulators delayed the Basel III implementation.
“The Federal Reserve has been focused–and will remain focused–on ensuring the nation’s largest financial institutions have enough capital to weather severe, unexpected conditions and still continue lending to households and businesses,” said Gov. Daniel Tarullo.
For the first time this year, firms will be able to make a downward adjustment to planned capital distributions from initial submissions before a final Federal Reserve decision is made.
The 19 bank companies must increase aggregate tier 1 common capital to $803 billion in the second quarter of this year, compared to $420 billion in the first quarter of 2009. The tier 1 common ratio for these firms has more than doubled to an average of 10.9%, compared to 5.4%.
The Federal Reserve will release two sets of post-stress data for each firm, with one reflecting the capital distribution assumptions mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
