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Alternative Market Briefing

Four banks still fail Fed's stress test

Wednesday, March 14, 2012

Bailey McCann, Opalesque New York: The US Federal Reserve has released the results of its latest "stress test" on US banks. The stress tests are part of the Fed's response to the financial crisis. Of the 19 banks tested, four banks - Citi, MetLife, Ally and SunTrust failed and were shown to have insufficient capital in the event of significant losses if they went forward with payout plans.

According to a statement from the Federal Reserve, the test examined whether banks would survive a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices. If this scenario were to transpire, losses at the 19 banks are estimated to total $534 billion during the nine quarters of the hypothetical stress test. Citi, MetLife, Ally and SunTrust would have been unable to continue without assistance in that scenario.

According to the Fed, the results "reflect a significant increase in capital during the past three years."

For the four banks that failed, the Fed rejected their capital plans including requests to approve issuing dividends or buy-backs. Ally was deemed to have insufficient capital even without these requests. JP Morgan, which passed the stress test announced that it would raise its dividend by 5 cents, according to ......................

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