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US Fed to subject 6 foreign bank units to stress tests

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(Globalpost/GlobalPost)

The US Federal Reserve said Friday it has expanded the list of major banks it subjects to tough stress tests to include US subsidiaries of six foreign banks.

The fourth annual evaluation of the strength of major banks, undertaken after the numerous collapses of 2008 financial crisis, will cover 30 banks in early 2014, up from 18 last year.

The 30 are all bank holding companies with more than $50 billion of total assets.

The list includes the US banking arms of six foreign banks: Canada's BMO Financial; BBVA and Santander of Spain; RBS and HSBC of Britain; and Japan's Mitsubishi UFJ.

The stress tests analyze how banks would survive under extreme crisis conditions, such as those that battered the industry in 2008.

The tests assess how stable banks would be in situations which combine an extreme plunge in stock markets, soaring unemployment, a housing market crash, and other deep turmoil in financial markets and the economy.

The Fed has used the tests to determine whether the banks need to deepen their capital strength and whether they should be permitted to undertake dividend payments and stock buybacks.

In the tests last March, 14 of the 18 banks were given full approval for their capital distribution plans, two received only condition approvals, while the Fed rejected those of two banks, BB&T and government-controlled Ally Financial.

Ally, the rescued former finance arm of General Motors, was the only bank to completely fail the test of capital strength.

The reviews aim to ensure the banks "have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that they have sufficient capital to continue operations throughout times of economic and financial stress," the Fed said in a statement.

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http://www.globalpost.com/dispatch/news/afp/131101/us-fed-subject-6-foreign-bank-units-stress-tests