US to stress test 31 banks against severe recessionNovember 23rd, 2011 - 1:44 pm ICT by IANS
Washington, Nov 23 (IANS) The US Federal Reserve has announced that it would carry out a new round of stress tests next year on the nation’s 31 largest financial institutions to determine whether they were well-capitalized to withstand a severe economic downturn.
The upcoming stress tests on an expanded list of US financial institutions come at a time when investors’ worries on the contagion of the eurozone debt crisis and exposure of the country’s financial institutions to the eurozone debt turmoil have led to recent market gyrations.
The US central bank began to carry out its annual stress tests on the country’s major financial institutions in 2009 in the aftermath of the global financial crisis, reported Xinhua.
The Fed added 12 new institutions to its stress testing list after examining 19 in 2011, stating that any financial institutions with assets worth more than $50 billion would be subject to the tests as they were designated as systemically important agencies by the Dodd-Frank Act.
“The level of detail and analysis expected in each institution’s capital plan will vary based on the company’s size, complexity, risk profile, and scope of operations,” the Fed said in a statement Tuesday.
These institutions were asked to submit their capital plans before Jan 9 next year to show they had adequate capital reserves to cope with projected loan losses from a recession, it said.
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Tags: adequate capital, capital reserves, contagion, debt crisis, dodd, economic downturn, federal reserve, financial institutions, global financial crisis, level of detail, loan losses, market gyrations, recession, risk profile, stress testing, stress tests, turmoil, us federal reserve, worries, xinhua