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Coming off recent passage of living wills, large banks continue to pass
stress tests
June 2017
Executive Summary
The largest banks have more than doubled capital since the
crisis. This increase is more than double the amount of TARP for
the entire banking industry and makes them more capitalized than
their European counterparts.
The largest U.S. banks passed the Fed's DFAST and CCAR
stress test with more than double the required minimum
capital levels. Further, since 2013, the largest banks have seen
lower loan loss rates, reflecting improved risk management and
more conservative balance sheets, and higher starting capital.
1
Capital Ratios Have Increased By Over 50 Percent Even
As Risk-Weights Have Become More Difficult
Average Tier 1 Capital Ratio For Six
Tier 1 Capital Ratio:
Largest Banks
New, Stricter
+59% Requirements: The
16
minimum Tier 1 ratio, with
Tier 1 Capital Ratio (%)
14
a capital conservation
12 5.6%
buffer, is 8.5 percent.
10 Tougher Risk-Weights:
8 Updated risk-weights
require banks to hold more
6
9.6% 9.6% capital against most types
4 of assets, reducing the
2 ability to 'game' regulators.
0
Q2 2008 Q1 2017
Source: Federal Reserve Economic Data, Bloomberg 2
Large US Banks Pass Feds Severely Adverse Scenario
With More Than Double The Regulatory Minimum
Aggregate Common Equity Tier 1 Ratio For The 34 Largest Bank Holding Companies
7
6
5
4 Under the Fed's severely adverse
3 economic scenario, large banks still
maintained an aggregate capital ratio of
2 9.2 percent, more than 4.7 percentage
1 points above the regulatory minimum.
0
Q415 Adverse Severely Adverse Capital Buffer at
Scenario Scenario Depth of Crisis
Source: Federal Reserve, Hamilton Place Strategies calculations 3
Since The First Stress Tests In 2013, Loan Losses Fell
And Starting Capital Rose For The Largest Banks
Loan-Loss Rates For The Six Starting Capital For The Six
Largest Banks, 2013 to 2017 Largest Banks, 2013 to 2017
-23% +13%
8 7.5% 14
12.5%
7 12 11.1%
6 5.8%
10
Percent (%)
Percent (%)
5
8
4
6
3
2 4
1 2
0 0
2013 2017 2013 2017
Source: Federal Reserve, Hamilton Place Strategies calculations 4
All Six Largest Banks Passed CCAR, Enabling Them To
Go Forward With Their Capital Distribution Plans
Bank Result
Citigroup Passed
5
Contextualizing This Historic Increase In Large Bank
Equity Capital
Banks are less levered than any time in the past 25 years. The
largest six banks alone have raised more than double the equity capital
that was injected into the entire banking sector through TARP.
Common
9.6%
Equity
2011
Source: Davis Polk 7