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Follow on Google News | 2013 stress testing results in line with expectations: CRISIL GR&ABy: CRISIL Limited The Fed has been conducting annual stress tests for large systemically important banks as a part of its Comprehensive Capital Analysis and Review (CCAR). Under CCAR, the Fed provides banks with extremely adverse hypothetical economic scenarios to evaluate whether they have sufficient capital to absorb losses during such times. The CCAR-2013 results show that 17 of the 18 participating banks were able to meet the regulatory benchmarks, unlike CCAR-2012, where 4 of the 19 banks had one or more projected regulatory ratios fall below the prescribed benchmarks at some point over the stress scenario horizon. In its evaluation, the Fed has assessed that the participating banks do have adequate capital to cope with economic and financial stress. Says Sanjeev Sinha, President, CRISIL GR&A, “This year, most banks are better equipped to withstand severe economic and financial crises with adequate capital buffers commensurate with their risk levels. This indicates a stronger and a well-capitalized banking system.” For the severely adverse scenario under CCAR-2013, aggregate losses are projected to be $462 billion for the 18 banks over the stress scenario horizon compared to aggregate projected losses of $534 billion (for 19 banks) under CCAR-2012. Explains Anshuman Prasad, Director, Risk & Analytics, CRISIL GR&A, “The increased focus on capital adequacy has enabled banks to significantly improve their capital positions. The average Tier 1 common ratio across the 18 participating banks has increased by 1.28 percentage points from 6.70 in 2012 to 7.98 in 2013.” The Fed plans to disclose its decision on bank-specific capital plans on March 14, 2013. This announcement could allow banks to go ahead with their planned dividend payouts and other capital actions. Also, unlike CCAR-2012, banks get a one-time opportunity to adjust their planned capital distributions (the adjustment has to be a reduction from the initial plan) once the Fed shares the bank-specific capital analysis results with them. The Fed release can be read here: http://www.federalreserve.gov/ End
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