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Monday, March 9, 2015

US bank stress tests

Round one of the Federal Reserve's annual bank stress tests concluded with all 31 banks under scrutiny passing. The tests include how a bank's Tier 1 ratio, a measure of capitalisation, would react under a hypothetical crisis. This year's tests included a more stringent corporate debt default scenario.

During last year's stress tests the average CDS spread among US banks was 73bps. The current average stands at 66bps; an indication that the US banking system is healthier this time around.

Round two results, which are due to come out next Wednesday, will delve deeper into how banks will allocate future profits, in a much more comprehensive capital analysis. All eyes will be on the big banks JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup.

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