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All banks but Morgan Stanley pass US Fed’s stress test

businesspaper Updated: Jul 01, 2016, 06:11 IST
Nathaniel Popper and Michael Corkery
Nathaniel Popper and Michael Corkery

NEW YORK: All US-based large banks except Morgan Stanley earned an unconditional passing grade from federal regulators on their annual stress tests, which measure their preparedness to weather a financial crisis.

Morgan Stanley, a Wall Street bank that has been struggling to regain its footing after the financial crisis of 2008. Regulators raised concerns over the company’s internal controls and processes.

The Federal Reserve gave failing grades to the US subsidiaries of two European banks, Deutsche Bank and Santander, which both failed in previous years.

The banking stress tests — which measure whether banks have enough capital and liquidity, management controls and other necessary safeguards to survive various worst-case situations — have been required of banks with more than $50 billion in assets since the passage of the Dodd-Frank Act, which took effect in 2010.

The passing grades mean that all of the big banks — even Morgan Stanley — will be able to pay dividends and buy back stock from shareholders. The failing banks will not.

The results, announced by the Fed on Wednesday, are the second part of the annual stress tests, which compel each institution to run a simulation of how it would bear up under various catastrophic conditions, like an abrupt rise in interest rates or unemployment, or a big crash in equity markets. Last week, the Fed said that all the big banks would be able to make it through a recession and still maintain adequate financial buffers.

On Wednesday, a Fed official said that even with the concerns raised, the stress test results suggest that banks would be able to withstand an event like Britain’s exit from the European Union, which has rocked bank stocks over the last week.


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