Washington (awp/afp) – The main US banks have enough liquidity to withstand a “severe recession” while being able to continue making loans, the Federal Reserve (Fed) assessed on Wednesday at the end of its annual stress test .
“Today’s results confirm that the banking system is sound and resilient,” said Federal Reserve Vice President for Supervision Michael Barr, specifying that the institution must nevertheless continue to work to ensure “that banks can withstand various types of scenarios and shocks”.
These tests concerned 23 of the largest US banks and aimed to assess what their capital levels, their losses and their income would be in the event of a major recession, with a collapse in the housing market and an unemployment rate of 10%.
According to the Fed, “the 23 banks will see their liquidity remain above the required floor, despite a total loss estimated at 541 billion dollars”, of which 100 billion would be the consequence of unpaid mortgage loans, for residential or professional premises.
This will result in a fall of 2.3 percentage points in the equity ratio, which will however remain above 10%.
The banks affected by these tests represent the main US institutions, including Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase. Also on the list are the American subsidiaries of Credit Suisse and UBS, which are being merged in Switzerland.
The results come just months after the bankruptcy of several regional banks, including Silicon Valley Bank (SVB), Signature and First Republic.
“Basel III”, a wide range of international banking sector reforms, was initiated after the 2008-2009 financial crisis to strengthen the solvency of banks. Many measures have been taken, but some reforms are still to be completed, especially in the United States.
However, regional banks are not affected by these stress tests, while the question of the application of supervisory rules to this type of establishment is the subject of discussion in a country with more than 4,500 banking institutions.
At a conference of central bankers in Sintra, Portugal, Fed Chairman Jerome Powell stressed: “We have to keep in mind, whatever changes we make, the need to preserve the business models of these small banks”.
After the bankruptcy of these companies, however, the Fed had recognized in an investigative report the need to strengthen its supervision and regulation of the sector.
afp/rp
