Fed: Big Banks Have More Work to Do to Withstand New Crises

Bank of America branch new york city federal reserve stress tests
Mark Lennihan/AP
WASHINGTON -- Big banks must improve the way they determine how much capital they need to withstand any future crisis, the U.S. Federal Reserve said, citing observations from regulators' periodic tests of banks' health.

The Fed said in a paper released Monday that banks participating in regular "stress tests" had flaws in their capital planning processes, such as being unable to show that they considered all of the relevant risks to their businesses.

"Large bank holding companies have considerably improved their capital planning processes in recent years, but have more work to do," the Fed said.

Stress testing banks has become a key tool for regulators to monitor the health of the financial system after the 2007-2009 meltdown. The tests aim to determine whether the biggest banks are maintaining adequate capital levels by examining how they would weather a hypothetical market shock.

The Federal Reserve also uses the tests to decide whether banks can buy back shares or pay dividends to shareholders. Some in the financial services industry have complained that the Fed's rubric for the tests isn't transparent enough.

In the round of testing that wrapped up in March, the Fed reprimanded JPMorgan Chase (JPM) and Goldman Sachs (GS) based on 'qualitative' concerns about their capital planning, even though regulators said the banks' ratios were acceptable.


The Fed approved capital plans at 14 other firms, including Citigroup (C) and Bank of America (BAC), with no strings attached. But the regulator said Monday that all the banks needed to improve their planning in some way.

The Fed said its paper, which didn't identify banks, describes regulators' expectations and pointed out practices that were weak or unacceptable in previous stress tests.

The paper pointed to problems such as modeling techniques that didn't address bank-specific risks, loss and revenue projections that couldn't be replicated, or problems with governance of the planning process.

Regulators said the next set of Fed-administered stress tests will start this fall. The 18 firms that participated in 2013, plus 12 additional banks with more than $50 billion in assets, will be included, the Fed said.



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scottee

the big banks and The Fed are CAUSING the crises.

August 19 2013 at 10:47 PM Report abuse rate up rate down Reply
hillchas

Ironic....Federal regulators and liberal politicians are the ones who forced the banks to make all the subprime loans that started this whole mess to begin with.

August 19 2013 at 9:49 PM Report abuse -1 rate up rate down Reply
lpoyced

the way to protect us from the too big to fail syndrome is to break up the banks and reinstate Glass Stegall so the banks can't gamble with depositor's money, plus have a cash reserve on hand to cover at least 30% of all deposits. By the way, the Dems didn't create this "crisis"...it all came out under the Shrub's administration and Obama inherited it.

August 19 2013 at 7:36 PM Report abuse rate up rate down Reply
1 reply to lpoyced's comment
betty_brock

Lead by Dumbercraps.

August 19 2013 at 9:00 PM Report abuse -1 rate up rate down Reply
rlbharman

The Democrats have to create a crisis so they can motivate the stupid idiots in their party. No matter what you say the Democrats have made one big mess starting at the top.

August 19 2013 at 5:06 PM Report abuse -2 rate up rate down Reply
pdbliz

A CRISES IS HARD TO WASTE................MAKE MONEY ON THE UN EDUCATED .
ALL MADE UP GOOBLE GOOP.!!!! BY ,,BOTH PARTIES,,,I AM SICK OF THEM BOTH.!!!!!
I USE TO WISH I WAS YOUNGER AGAIN,,,,NO MORE,,,,,,I AM GLAD TO BE A SENIOR.........I HAVE SEEN THE BETTER DAYS AND ENJOYED THEM,.....I FEEL SORRY FOR THE YOUNG..

August 19 2013 at 4:54 PM Report abuse rate up rate down Reply
pdbliz

STUPID PEOPLE,,,THERE IS NO CRISES.!!!!!!! ALL MADE UP BY GOVERMENT.!!!

August 19 2013 at 4:51 PM Report abuse -2 rate up rate down Reply
mmstitanic

WATCH WHEN CHIEF BANKING EXEC'S ARE SELLING STOCK AND WHEN THEY ARE AWARDING THEMSELVES WITH STOCK.

August 19 2013 at 4:19 PM Report abuse +1 rate up rate down Reply
hcheer

so now the regulators are still running the banks

August 19 2013 at 3:07 PM Report abuse +1 rate up rate down Reply