Charlotte’s biggest banks once again met minimum federal capital requirements under the Federal Reserve’s latest “stress tests,” annual exams that are supposed to measure the resiliency of the nation’s biggest banks against another major economic downturn.
The results of the tests were released Thursday afternoon. Bank of America, BB&T Corp. and Wells Fargo all remained above the minimum 5 percent required for the so-called tier 1 capital ratio, a closely watched metric of lenders’ top-tier capital. The three banks are the largest by market share in the Charlotte area.
The 28 other bank holding companies included in the Federal Reserve’s test also met the 5 percent minimum.
Federal Reserve officials said Thursday that the latest test results illustrate the ongoing growth of capital at large bank holding companies. Since the financial crisis, the amount of capital at the companies has doubled, the officials said.
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This year, Charlotte-based Bank of America exceeded the 5 percent minimum for top-tier capital by more than it did last year, while Wells Fargo and BB&T posted lower percentages than the year before.
In this year’s test, Bank of America posted a minimum of 7.1 percent, compared with 5.9 percent a year ago. San Francisco-based Wells Fargo posted a minimum of 7.5 percent, down from 8.2 percent. Winston-Salem-based BB&T recorded a minimum of 8.1 percent, a decline from 8.4 percent.
The stress tests are required under the federal Dodd-Frank financial reform act, which was designed to help prevent another financial crisis. Bank holding companies with $50 billion or more in total assets must undergo the tests.
The exams are designed to determine whether large lenders have enough capital to withstand another dire economic slump. Specifically, the Fed looks to see whether banks met a range of minimum capital ratios when subjected to the regulator’s hypothetical economic downturn scenarios, one of which is a more extreme, “severely adverse” event.
Under this year’s version of that hypothetical event, the U.S. undergoes a recession bringing a peak of 10 percent unemployment in 2016. Among other things, the scenario includes a roughly 4.5 percent decline in real gross domestic product from the third quarter of 2014 to the end of 2015, as well as recessions across Europe and in Asia.
On Wednesday, in a separate round of tests, the Fed will announce whether it will object to banks’ proposed plans to return capital to shareholders, such as through stock repurchases or dividend increases.
Under those tests, the Fed will examine whether banks’ proposed capital plans meet minimum capital requirements. If they don’t, the Fed will object to the plans.
Banks were given the stress test results Thursday morning. They now have a chance to revise their capital plans before the Fed issues its final decision next week on whether to object to them.
Last year, Utah-based Zions Bancorp. was the only bank that failed as its capital fell below the minimum. A total of 29 banks were tested last year.
Dodd-Frank also requires banks to conduct their own internal stress tests. Banks released those results Thursday.
BB&T reported that its tier 1 capital ratio would decline to a minimum of 7.3 percent. Bank of America reported a minimum of 8.1 percent. Wells Fargo projected a minimum of 9.5 percent.
The results were based on the “severely adverse” economic downturn scenario.
How other banks fared
The Federal Reserve’s stress tests examine whether the largest bank holding companies meet a range of minimum capital ratios, including the closely watched 5 percent minimum for top-tier capital. For banks with branches in the Charlotte metropolitan area, here are the minimum ratios for that type of capital under a hypothetical “severely adverse” economic downturn, according to the test results released Thursday:
▪ Fifth Third Bancorp, 7.9 percent
▪ PNC Financial Services Group, 9.5 percent
▪ Regions Financial Corp., 8.3 percent
▪ SunTrust Banks, 8.2 percent