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March 20, 2014

Fed to release results of financial industry health check

“JPMorgan Chase, Citigroup, Morgan Stanley and other banks will find out if the Federal Reserve thinks they can cope with the next financial crisis when it publishes the results of an annual health check on Thursday.”

“If the Fed finds that any of the 30 banks subject to the so-called stress tests are still at risk, the banks will then have a few days to change any plans they may have made to return capital to shareholders through dividends or share buy-backs.”

“Most banks are expected to pass the exam, but analysts will closely watch the results. Last year, American Express lowered its capital distribution proposal after the first submission.”

“And banks may have been more willing to take risks with their initial plans this year, now that they have been building up capital in the years since the crisis.”

“‘These banks are very well capitalized and I know they’re going to want to get more aggressive each incremental year in terms of what they ask for,’” said Fred Cannon, global director of research for Keefe, Bruyette and Woods.”

“The annual testing has become an increasingly important tool for regulators to ensure that banks are not eating too much into their capital cushions, by examining how banks would weather a hypothetical major market shock.”

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Read full Reuters article here.

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