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March 19, 2012

Banks pass but Fed test comes under fire

“The US banking system is safe. That was the overall message from the Federal Reserve, which sparked a rally in bank stocks on anticipation of higher dividends and share buybacks.”

“Banks were forced to submit detailed capital plans to the Fed, setting out how they would survive an unemployment rate of 13 per cent amid a severe global recession. If banks could not demonstrate a 5 per cent ratio of core capital to risk-weighted assets they would not be allowed to pay higher dividends.”

“Hawkish critics say the opposite. ‘The tests have been perverted into a mechanism for the biggest banks to pay out billions in capital, which makes them less likely to survive the next economic crisis,’ said Dennis Kelleher, president of Better Markets, an organisation that campaigns for stricter financial regulation.”


Read full Financial Times article here.


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