Deutsche Bank passes U.S. stress test in surprise Fed decision

Fed Bank Stress Tests

Fed Bank Stress Tests

All 18 banks undergoing the Fed's annual stress test were given the all-clear, although the central bank placed conditions on Credit Suisse's USA operations after finding weaknesses in its capital planning processes. The Fed is requiring the firm to address weaknesses in its capital adequacy process by October 27, 2019.

With the Fed no longer pushing lenders to increase capital reserves each year, and banks growing comfortable with the stress testing process, they may be getting more aggressive with their capital plans, a senior Fed official said Thursday.

Wells Fargo comes with a share buyback program of more than $ 23 billion and is also increasing its dividend.

The stress test has also helped Deutsche Bank officials because the bank failed the stress test previous year. The dispute has prompted the Federal Reserve to say it is willing to cut interest rates if the dispute hurts the USA economy.

Banks normally resubmit when they are pushing to return the maximum amount of capital possible to shareholders and overestimate what the Fed will allow them to do in their initial proposal, banking and regulatory sources say.

This year, the Feds said that the bank had made progress, but it still needs to improve.

Deutsche Bank was among the banks tested and it passed without comment. Capital One fell short after the Fed projected steeper losses on credit-card portfolios in a severely stressed scenario.

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The tests have become the most important tool for regulating the USA financial industry since the 2008 credit crisis showed many firms were lavishing profits on investors and retaining too little capital to absorb losses in an emergency. Fitch analyst Bain Rumohr said that, for this year, us banks' payout ratios - the percentage of earnings they payout as dividends and share buy backs - have risen to over 100% of earnings, compared with 80% to 90% last year.

This was the smallest group of banks that the Fed tested. The last time it happened was 2017, when the US units of major overseas lenders weren't subjected to the qualitative portion of the test. "Bank of America, Goldman Sachs, and JPMorgan were approved for a gross capital payout at least 20% above our forecast".

This year's assessment was easier on capital-markets businesses.

Goldman Sachs (N:), Morgan Stanley (N:) and State Street Corp (N:), which received conditional passes last year, passed without conditions this year. Last year, the pair were restrained from expanding payouts.

The stress tests review how the country's largest banks would weather a sharp economic downturn or significant shock to the global economy. But Deutsche's efforts to compete with US rivals have been hampered by litigation and regulatory investigations.

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