Banks
brace for Fed capital buffers inspection
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[March 05, 2015]
By Douwe Miedema
WASHINGTON (Reuters) - The largest U.S.
banks and their foreign rivals are facing a tough two-step check-up of
their financial health by the Federal Reserve, forcing the firms to get
a far better grip on how they measure risk.
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In its annual "stress tests", the Fed gauges whether banks have
enough shareholder capital to withstand a severe economic shock like
that of the 2007-09 crisis, when taxpayers spent billions of dollars
to keep the industry afloat.
On Thursday, it will publish the first leg of the tests, announcing
which of the 31 banks have dropped below the 5 percent minimum for
top-tier capital.
But the toughest part of the test comes on March 11, when the Fed
reveals if the banks get approval for any planned increases in
shareholder pay-outs. Last year, four banks failed that hurdle,
while only one fell short of the first.
Next week's review takes a look under the hood of the banks - which
Wall Street critics say are "too large to manage" - by scrutinizing
whether managers are in truly in control of their firms. And the
test is becoming tougher each year.
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"If the senior management ... cannot explain how these results were
produced, (the regulators are) going to have very little tolerance,"
said Ahson Pai, a partner at consulting firm SunGard, who helps
large banks with the tests.
Global regulators have forced banks to borrow less to fund their
business after the crisis, and the stress tests are increasingly
becoming an important instrument for the Fed to test the industry's
resilience.
Deutsche Bank and Spain's Santander are expected to fail next week's
test, something that was first reported by the Wall Street Journal.
It is the first year that Deutsche takes part in the exercise, but
it would be the second year in a row that Santander misses the cut.
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Both companies declined to comment.
The Fed last year shocked markets by rejecting Citigroup's dividend
boost, a blow for Chief Executive Michael Corbat, who had been
working hard to mend fences with regulators after the bank flunked
the test under his predecessor in 2012.
The U.S. units of HSBC and RBS were the other two that failed the
second test. Zions Bancorp was the only bank to miss the 5 percent
hurdle.
(Reporting by Douwe Miedema; Editing by Bernard Orr)
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