Will Nations Largest Banks Survive a Severe Meltdown?

Posted by - Friday, March 8th, 2013

It's that time of year again – the Fed will initiate an annual stress test to the nation's biggest banks to see if they really are too big to fail after all.

According to estimates from the Federal Reserve, 17 of the country's 18 largest banks would lose $462 billion dollars if our economy were to nosedive into another recession equivalent to our most recent one.

However, the Fed confidently asserts that most of the largest banks would survive despite the huge losses. If losing half-a-trillion dollars doesn't bring them down, they must have a boatload of money stored away...

Could it be that $83-billion-taxpayer 'donation' they rake in every year that's keeping them afloat in lieu of financial disturbances?

From CNNMoney:

Of the 18 banks tested by the Fed, only Ally Financial, the former finance arm of General Motors (GM), would sustain big enough losses to potentially put it out of business. All of the other banks would have enough capital to make it through.

But the Fed found that a key ratio of financial health for Goldman Sachs (GS) and Morgan Stanley (MS) would drop to a level that is only slightly above what the Fed considers acceptable.

Another surprise? Citigroup (C), which has struggled since the financial crisis and recently named a new CEO, was deemed the most prepared to weather another recession among the nation's six largest banks. Citi was followed by Wells Fargo (WFC) and Bank of America (BAC).

JPMorgan Chase (JPM), which is generally thought to be the strongest of the nation's big banks, came out only ahead of Goldman and Morgan Stanley. It also was projected to have the biggest losses of the 18 biggest banks ... at just over $77 billion.

The Fed assures the public that banks are far better prepared for an economic downtown than they were before the financial crisis. Although common sense tells us this would be true, you never know with these schemers... they don't seem to learn from their mistakes very easily.

In order for the Fed to classify banks as “healthy” the bank should have enough capital to cover a 5% drop it its assets. During the worst part of the financial crisis “the average so-called capital ratio at the largest banks dropped to 5.6%.” Allegedly, the Fed's recent stress test reveals that the average capital ratios of the big banks would slump to just 7.4%.

So they say...

These stress test are only in the beginning stages at this time. Expect another announcement from the Fed next week regarding whether or not they have approved plans by big banks to increase dividends and buy back more stock.


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