The Fed Releases Results for First Round of Stress Test
As a result of the financial crisis, regulators placed greater restrictions on banks. Each year the Fed initiates a “Stress Test” to determine the financial health of United States banks. The Banks are assessed on how they handle a severe economic downturn. This year the Fed modeled a grim economic situation – a 10% unemployment rate, a steep decline in housing prices, and a severe recession in the Eurozone.
On Thursday, June 22, 2017, the Fed announced all 34 banks measured passed the economic stress test. Each year, the Fed changes the test in order to prevent banks from being able to trick the system. If a bank does not pass the test, it is disallowed to pay out dividends until approved by regulators – a hefty punishment for stockholders.
In summary, the results showed that capital plans for banks are sufficient to continue lending, even during a severe economic downturn. Stay tuned for more news.