Attacking rules has been a top priority for Mr. Trump, who has called the 2010 Dodd-Frank Act a disaster that's made it extremely hard for companies to get loans.
The objective of the stress test is to ensure that the banks have enough capital to lend to customers and businesses even under extremely trying economic conditions. The Fed has also seen the tactic as a way to poke around bank balance sheets for weak assets.
Under the Fed's worst-case stress test scenario, the USA unemployment rate more than doubles to 10 percent.
Citigroup Inc fared the best among big Wall Street banks, with a ratio of 9.7 percent.
This is a low hurdle for banks by now, as majority have spent the past eight years accumulating record amounts of capital. Powell argued the other safety measures built into the law - namely its capital and liquidity requirements and the stress tests - reduce the urgency of Volcker's ban on proprietary trading. Bank of America (NYSE:BAC) wasn't far behind, with $169 billion in high-quality capital and a CET1 ratio of 12.1%.
One of the stumbling blocks could be a new wrinkle added this year called the supplementary leverage ratio - the bank's top-tier capital divided by its total leverage exposure. The tests require banks to meet a 4.5% threshold in order to pass.
The most severe hypothetical scenario projected $383 billion in loan losses among the 34 tested bank holding companies over nine quarters. U.S. Bancorp (NYSE:USB) serves as a case in point. Banks now have an opportunity to resubmit those plans if they find their own projections were much sunnier than the Fed's.
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The two-part test revealed that the biggest United States lenders would be hit by $383bn in loan losses in a hypothetical scenario in which the U.S. employment rate rose to 10 per cent. This year, however, Citi's estimated lending losses in a recession dropped to just less than $45 billion. While not all banks went in this direction, Bank of America's performance is generally representative of the group.
The most immediate impact of the announced stress test results for the banks will be on their capital plans for the year, which will be disclosed along with the second and final phase of the stress test results slated to be announced next week (June 28). Results from that round are due next week.
The CCAR is a slightly different beast than the DFAST. One is whether the banks have enough capital to survive economic turmoil in the financial system.
The Fed can reject a bank's capital plan for either reason. This is a qualitative analysis, and it's what has most frequently tripped up banks in the past.
In the first part of its annual tests, the Fed said 34 of the largest US banks have significantly bolstered their defenses since the 2008 crisis. They said they could envision smaller banks being exempted from the Volcker Rule, named after former Fed Chairman Paul Volcker who led the central bank in the 1980s.
"T$3 he Trump administration will likely use the findings to support its push for deregulation", said Cap Alpha analyst Ian Katz, according to Politico.