Top 29 US Banks Pass Fed Stress Test; Zion Fails, To Resubmit Capital Plan

(RTTNews) - The Federal Reserve announced on Thursday that all, but one, of the thirty largest banking institutions in the U.S. have passed the annual stress test, reflecting continued broad improvement in their capital positions since the financial crisis in 2008. Only Zions Bancorp.'s (ZION) capital ratios have not met the minimum requirements under the Federal Reserve's capital adequacy rules.

"The annual stress test is one of the Federal Reserve's most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions. Each year we are making substantial improvements, which have helped make the process even stronger than when we first conducted the stress tests in the midst of the financial crisis five years ago," Federal Reserve Governor Daniel Tarullo said in a statement.

This is the fourth round of stress tests led by the Federal Reserve since the tests in 2009 and is the second year that the Federal Reserve has conducted stress tests pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The current test is called the Dodd-Frank Act Stress Test (DFAST) that was conducted on the three quarters of fiscal 2013.

The stress tests were created after the 2008 financial crisis when banks were found to be overleveraged and overexposed to a bubbling real estate market.

The test revealed that 29 bank holding companies, with assets greater than $50 billion, are collectively better positioned than they were five years ago to provide loans to households and businesses as well as to pay returns to shareholders in the form of dividends and share buybacks.

Among the banks the underwent the test, American Express Co. (AXP), Bank of New York Mellon Corp. (BK), Discover Financial Services (DFS), Northern Trust Corp. (NTRS), State Street Corp. (STT) were that top performers, with others such as BB&T Corp. (BBT), Fifth Third Bancorp (FITB), U.S. Bancorp (USB), UnionBanCal Corp. (UB), and Wells Fargo & Co. (WFC) just about meeting or beating the median tier 1 common ratio of 8.2 percent among the 30 bank holding companies.

The big guns such as Bank of America Corp. (BAC) JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Goldman Sachs Group, Inc. (GS) and Citigroup, Inc. (C) were below the median, between 6 and 7 percent. However, Zion was the only one that failed to meet the minimum 5 percent threshold, at 3.5 percent.

Separately Zions Bancorp. announced that it will resubmit its capital plan to the Federal Reserve that will contain additional actions that will further reduce risk and/or increase its common equity capital sufficient to cause Zions' capital ratios to meet or exceed the minimum capital ratios.

Zion noted that the issue would have been caused as the original submission to the Federal Reserve was made prior to the sale of certain collateralized debt obligation securities in January and February 2014. Including the sale, there would now be a substantial reduction in risk.

Zion said the initial review under DFAST showed significantly higher commercial real estate losses, significantly greater risk-weighted assets, and lower pre-tax, pre-provision net revenue.