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In Response To Dividend Request, Fed Tells Banks To Stress Test For New Recession With 11% Unemployment

Insolvent banks now want to hike dividend payments to shareholders.  

Bill Black is having a coronary.


Source - Bloomberg 

The Federal Reserve ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession with unemployment rising above 11 percent, said two people with knowledge of the review.

The banks stress-tested the performance of their loans, securities, earnings, and capital against at least three possible economic outcomes as part of a broader capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans last month. The Fed will finish its review in March.

“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’ ” said Jonathan Hatcher, a credit strategist specializing in banks at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.

Executives at banks such as JPMorgan Chase & Co. in New York and PNC Financial Services Group Inc. in Pittsburgh have asked regulators for permission to increase dividends. The Fed has told banks that it expects dividends and share buybacks to be “conservative” and allow for “significant accretion of capital,” according to a November notice. Some capital payout plans may be rejected as “inappropriate,” the notice said.

The Fed also wants banks to consider how the Dodd-Frank Act overhauling financial oversight might affect earnings, and how they will meet stricter international capital guidelines, according to the November notice. Banks will also have to consider how many faulty mortgages investors may ask them to take back into their portfolios. Standard & Poor’s Corp. estimates mortgage buybacks could cost the industry as much as $60 billion.

The Fed’s adverse economic scenario included a 1.5 percent decline in gross domestic product from the fourth quarter of last year through the end of 2011, said the people, who declined to be named because the Fed hasn’t made the details of the review public. The scenario assumed growth resumes, with output rising 4 percent over the fourth-quarter 2010 level by the end of 2013. Unemployment would peak at more than 11 percent by the first quarter of 2012 and drop back to 9.5 percent by the end of 2013.

While Fed policy makers want banks to be prepared for a slump, they aren’t predicting one.  In January, members of the Federal Open Market Committee forecast growth of 3.4 percent or more annually over the next three years, with the jobless rate falling to 6.8 percent to 7.2 percent in the fourth quarter of 2013. Unemployment averaged 9.6 percent in the final three months of 2010.

Continue reading at Bloomberg...





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Reader Comments (8)

Feb 18, 2011 at 3:12 AM | Registered CommenterDailyBail
Feb 18, 2011 at 3:13 AM | Registered CommenterDailyBail
As the Tunisian dictator Zine el Abidine Ben Ali discovered in January, there is no surer route to political oblivion than to deny people access to affordable food.

Feb 18, 2011 at 3:15 AM | Registered CommenterDailyBail
Federal Reserve officials yesterday addressed a Fed proposal to cap debit-card “swipe” fees at 12 cents per transaction.

Fed Chairman Ben S. Bernanke told lawmakers that the central bank’s governors are uncertain that lenders with less than $10 billion in assets would be helped by an exemption from the rule.

“We are not certain how effective that exemption will be,” Bernanke said yesterday at a Senate Banking Committee hearing on implementation of the Dodd-Frank Act. “It is possible that because merchants will reject more expensive cards from smaller institutions, or because networks will not be willing to differentiate the interchange fee for issuers of different sizes, it is possible that the exemption will not be effective in the marketplace.”

Feb 18, 2011 at 3:16 AM | Registered CommenterDailyBail
The recession ended?
Feb 18, 2011 at 3:27 AM | Unregistered CommenterS. Gompers
that's wording from the Fed, not me...
Feb 18, 2011 at 4:13 AM | Registered CommenterDailyBail
Did you see two U.S. immigration agents got shot in cold blood in central Mexico on Tuesday? And did you know Los Zetas were trained in the U.S. at the School of the Americas at Fort Benning Georgia before "defecting"to the cartels?
Feb 18, 2011 at 4:47 AM | Unregistered CommenterS. Gompers
i went to the same school as patrick. i remeber those girls from my school who wrote in. they were white trash...i always felt so bad for them. shtbsz shtbsz - <a href="http://www.giubbottibelstaffoutlets.com">Belstaff Abbigliamento UOMO</a>.
Nov 25, 2011 at 10:42 AM | Unregistered Commenterzawiys zawiys

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