The Federal Reserve will release on Thursday the results of its latest round of stress tests on 19 large U.S. banks, the regulator said on Monday.
The test will gauge the ability of banks to withstand a financial shock that includes unemployment hitting 13 percent and a 21 percent drop in housing prices.
The Fed first used stress tests in 2009 to calm markets worried about the balance sheets of banks during the financial crisis and began a regime of annual stress, or capital, tests in 2011.
According to disclosure templates revealed on Monday, the bank-by-bank financial information this year will be the most extensive yet and will include information that could be prized by investors and financial analysts, such as stress scenario estimates of pre-tax income, total assets and loan-loss provisions.
The Fed will also show how well capital positions hold up under the test conditions, as well as the deterioration in several loan categories, including credit cards and home loans.
The results will be released after markets close on Thursday.
Six of the largest U.S. banks are receiving added scrutiny that includes a test on how well they would respond to market conditions similar to the second half of 2008 after Lehman Brothers failed.
This scenario includes strains related to the current European sovereign debt woes, with a particular focus on banks’ counterparty risks, the Fed said in a release.
The banks subject to this added scrutiny have large trading operations that separate them from their peers.
These banks are Goldman Sachs Group Inc, Morgan Stanley, Bank of America Corp, Citigroup Inc , JPMorgan Chase & Co and Wells Fargo and Co .
The results are highly anticipated by banks because they will determine whether the institutions can boost stock dividend payments and buy back shares.
Among the banks most closely watched by investors and analysts is Citigroup, which relied heavily on government support during the crisis, to see whether it will be allowed to boost its penny-per-share quarterly dividend. [ID: nL2E8E6CAC]
The Fed, led by Governor Daniel Tarullo, has put an increasing amount of emphasis since the financial crisis on pushing big banks to beef up their capital positions, or how much they are funded through equity as opposed to debt, to make the financial sector more stable.
“The Federal Reserve expects large, complex bank holding companies to hold sufficient capital to maintain access to funding, to continue to serve as credit intermediaries, to meet their obligations to creditors and counterparties, and to continue operations, even under adverse economic conditions,” the Fed said in a release.
Banks have complained that new capital standards are too tough and will cause lending to dry up, Reuters reported.
Wall Street critics have dismissed these complaints as vastly overstated and contend regulators should go even further.
The test results and the size of dividend boosts the Fed allows will indicate how much each side of the debate is influencing regulators.
The goal of the tests is to determine whether large banks can weather a dramatic economic downturn, as well as to see how far along the institutions are to meeting the new international capital rules known as Basel III.
The Fed released the parameters of the tests in November and banks had to submit information to regulators by Jan. 9, including on whether and by how much they would like to increase their dividends.
Banking groups have complained that the Fed is going to release too much specific data about each institution, which could give away competitive information.
The documents released on Monday show the Fed has mostly rejected these arguments and will provide more details than were released in 2009. The Fed did not release any bank specific results last year.
