02/15/2024 – 14:52
The large North American banks reacted to the criteria of the Federal Reserve (Fed, the central bank of the United States) for the stress test it carries out on the sector annually, released this Thursday morning, 15. The Financial Services Forum, an entity who defends the interests of these institutions in Washington, states that the Wall Street giants are “highly capitalized”.
The defense comes amid new turbulence in the sector, especially with medium-sized banks due to problems in the North American commercial real estate segment.
“Several hypothetical stress tests, as well as those from the pandemic and last year’s banking turmoil, have shown that the largest U.S. banks can – and do – act as a bulwark for the economy and the financial sector,” said the president of Financial Services Forum, Kevin Fromer, in a note published this Thursday.
In his view, the “rigorous” regulatory framework in force and the requirements on global systemically important banks (GSIBs) reinforce that significant additional capital increases “are not justified” and “would harm the economy in general”.
Fromer also criticized the new Basel III rules, which define how much banks can lend without compromising their capital. For him, elements of the final proposal “would double the exercise of the stress test, imposing unnecessary costs on banks, savers, investors and the economy in general”.
“This redundancy is bad policy for American businesses and families,” said the president of the Financial Services Forum.
The Fed said earlier that it will test the performance of 32 banks in a hypothetical scenario of a severe recession with elevated stress in the commercial and residential real estate sector, as well as the corporate debt market. The results will be known next June.
This is the authority's 15th test to assess the financial health of banks in the US, according to Fromer. The criteria released Thursday represent a “continuation of the highly rigorous standards” applied to the largest U.S. financial institutions, she concluded.
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