Bank of New York Mellon tops list of banks passing stress test
The Federal Reserve said 17 of the nation's 18 largest banks could withstand a deep recession and maintain capital above a regulatory minimum that banks are required to set aside as a buffer to protect them against possible losses.
Three banks with a strong Pittsburgh connection were among the banks with the strongest capital levels.
Bank of New York Mellon, based in New York and with 7,600 employees in the Pittsburgh region, topped the Fed's list with a Tier I common capital ratio of 13.2 percent of assets. The ratio is a measure of financial strength and represents the cushion of money held above what is owed to depositors. A BNY Mellon spokesman declined to comment.
PNC Financial Services Group Inc., based in Pittsburgh where it employs 7,500, was fifth on the Fed list with a ratio of 8.7 percent. PNC issued a statement with its own estimate of 7.9 percent. A spokesman declined to comment.
Fifth Third Bancorp., based in Cincinnati with 15 offices in the Pittsburgh area, was sixth with a ratio of 8.6 percent.
Only Ally Financial Inc., the auto lender majority-owned by taxpayers, fell below a 5 percent Tier 1 common ratio, a regulatory minimum and measure of financial strength, according to data released Thursday by the central bank in Washington. Morgan Stanley showed a minimum Tier 1 common ratio of 5.7 percent in the test, and Goldman Sachs Group Inc. showed a ratio of 5.8 percent.
“The stress tests are a tool to gauge the resiliency of the financial sector,” Fed Governor Daniel Tarullo said in a statement. “Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty.”
The Fed on Thursday will release results of a second stress test that focuses on the lenders' capital plans, assessing how dividend or share-buyback increases would affect them. The central bank that day will inform banks whether they can increase payouts. Thursday's test results don't forecast results for next week's test, the Fed official said on the conference call, because the Dodd-Frank stress test doesn't include forward-looking management decisions.
Since the 2008-09 financial crisis, regulators have tried to minimize the odds of another taxpayer rescue, compelling banks to retain some earnings and reinforce their buffers against possible losses.
With the economy in the fourth year of expansion, banks are benefitting from a housing market rebound, falling mortgage delinquencies and record-low short-term interest rates that boost earnings.
Projected losses for the 18 banks under a scenario of deep recession and peak unemployment of 12.1 percent would total $462 billion over nine quarters, the Fed said. The aggregate Tier 1 common capital ratio would fall from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014. The firms represent about 70 percent of the assets in the banking system.
The Fed said in a release that the “projections should not be interpreted as expected or likely outcomes for the bank, but rather as possible results under hypothetical, severely adverse conditions.” A Fed official said on a conference call with reporters that the severely adverse scenario represents a financial calamity of greater magnitude than any two-year period in the past 100 years except for the Great Depression.
“We are entering this year with a stronger capital base and we are further through the credit cycle,” so fewer loans are going bad, said R. Scott Siefers, a managing director at Sandler O'Neill & Partners in New York. “Even though banks are paying out more of their earnings than a couple of years ago, there has still been an increase in retained earnings,” which bolsters capital.
Bloomberg News and Trib Total Media staff writer John D. Oravecz contributed to this report.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- If you get this letter from the IRS, it’s legitimate
- Home appraisal is below sales price — now what?
- Increased credit card use reflects confidence, flat wages
- Heinz merging with Kraft in mega-deal; headquarters to stay in Pittsburgh
- Corporate missteps hurt reputations, profits, sometimes in long run
- Stop foreign dumping, U.S. Steel CEO Longhi tells Congress
- Stafford: Hirers bemoan wasted time with some applicants
- Farmers fund research on gluten-free wheat
- France plane crash victim’s father calls for airlines to focus on pilot welfare
- Tourists rush to visit Cuba before American influence felt
- U.S. Steel to idle Illinois plant, shed up to 2,080 more workers