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The Fed's criticism is notable because State Street, among others, lobbied successfully this spring for lawmakers to reduce some of the capital requirements facing custodian banks. When calculating capital to be held on their balance sheet, State Street and two other custodian banks are able to set aside deposits they have received from other banks and immediately given to the Federal Reserve or a bank. other central bank.
State Street specifically about the criticism of the Fed. But in a statement posted on its website, the bank said it was not obliged to resubmit its cash distribution plan after making the changes requested by the bank's authority. regulation.
Randal K. Quarles, Vice President of the Fed, said Thursday The results "demonstrate that the largest banks have strong capital levels and, after making their approved capital distributions, would retain their ability to lend even in a serious recession. "
The 35 banks that went through these tests added $ 800 billion. high quality capital since 2009, said the Fed. While these banks would lose $ 578 billion during a severe recession, the Fed concluded that they would be able to continue lending in such an environment.
Last week, the Fed said the 35 banks had crossed the first of two hurdles. assessments, which test how financial institutions would resist if the economy plunged into a recession. The Fed's stress tests, set up following the 2008 financial crisis, take into account a series of economic scenarios, including rising unemployment and pressure on home prices. Thursday's test series also included a "qualitative" assessment that assessed whether banks had adequate internal controls and risk management systems to detect potential problems before they degenerated.
The two tests are the basis of the regulator's decision. Banks distribute a portion of their cash to shareholders through redemptions and dividends. For foreign banks, the tests determine how much capital they can send to their parent companies abroad.
Nowadays, there is a lot of money to distribute.
In the first three months of 2018, bank profits increased by 27.5%. the same period last year, the Federal Deposit Insurance Corporation reported in May. The Fed 's interest rate hikes and Trump' s tax cuts have fueled the windfall profits. According to the Just Capital research group, JPMorgan Chase, Wells Fargo and Bank of America have already reported saving a total of about $ 8 billion through tax cuts.
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