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09 March 2015
Washington DC
Reporter Stephanie Palmer

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US banks pass Dodd-Frank stress testing

The US Federal Reserve has completed its latest round of Dodd Frank Act supervisory stress testing, reporting that all 31 participating US banks have passed.

The Dodd-Frank Act requires the reserve to conduct annual stress testing on banks $50 billion or more in total consolidated assets. The firms were conducted under ‘adverse’ or ‘severely adverse’ scenarios.

Under the hypothetical ‘severely adverse’ conditions, the loan losses would total $340 billion across all banks over a nine-quarter period, and common capital ratio would fall from 11.9 percent to a minimum of 8.2 percent.

This is a significant improvement from the post-crisis common capital ratio of 5.5 percent measured at the beginning of 2009.

Among the highest levels of predicted losses under the severely adverse scenario were Wells Fargo with $42.7 billion, Bank of America with $34.4 billion, and JP Morgan Chase with $30.4 billion.

Federal Reserve governor Daniel Tarullo said: "Higher capital levels at large banks increase the resiliency of our financial system."

He added: “Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn."

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