Stress Test 2016: Who Improved, Who Faltered
July 1, 2016 11:00 AM
U.S banks have come a long way from the early days of the stress tests, when it was unclear if any would pass. The majority of banks easily cleared the 5% minimum level for capital under the severely adverse scenario as well as the vaguer qualitative test the Federal Reserve Board imposes, suggesting institutions have finally gotten a handle on the process. Still, it's useful to see which banks improved from last year, as well as the few which fell toward the back of the back.
David Ramos/Bloomberg
Santander, Deutsche Bank
By far the biggest losers of this year's Comprehensive Capital Analysis and Review were the U.S. arms of Deutsche Bank Trust Corp. and Santander Holdings. Both had high levels of capital under the Fed's worst case scenario, 30.1% and 11.9%, respectively. Those scores were in line with the 2015 results, but like last year, both banks failed for "qualitative" reasons. The Fed cited "broad and substantial weaknesses across their capital planning processes, and insufficient progress these firms have made toward correcting those weaknesses and meeting supervisory expectations."
Morgan Stanley
Morgan Stanley's capital level under the severely adverse scenario jumped to 7.7% in 2016 from 5.9% last year, but the Fed still issued a conditional non-objection. That allows Morgan to proceed with its capital plan, but it must fix weaknesses identified by the Fed. Those included "shortcomings in the firm's scenario design practices, which do not adequately reflect risks and vulnerabilities specific to the firm, weaknesses in some aspects of the firm's modeling practices, and weaknesses in governance and controls around both scenario design and modeling practices," the Fed said.
M&T Bank
Unlike many of the banks in the 2016 CCAR, M&T's capital level dropped from a year earlier, falling from 6.9% in 2015 to 4.5% a year later. That would have been enough for the bank to fail the test, but the Fed allows do-overs for banks that fall short. Still, on its second try, the bank barely passed, meeting the minimum threshold of 5%. It was the only bank in the 2016 cycle to submit a second take.
JPMorgan Chase
JPMorgan's story was nearly the exact opposite from M&T. Last year, its initial capital showing was just 5% the Fed's minimum rising to 5.5% on its second try. This year, however, it scored 6.8%, well above the minimum.
Bank of America
Like JPMorgan, Bank of America showed improvement in this year's test. While the quantitative score in the 2015 results were 6.8%, the Fed required the bank to resubmit its capital plan, citing material deficiencies with its planning process. Bank of America was projected to hold 7.1% common equity capital under the severe scenario in the 2016 results and there was no criticism of its process this time around.
