WASHINGTON: The largest US banks and their foreign rivals face a tough two check your financial health of the Federal Reserve steps, forcing companies to get a better handle on how to measure risk.
In its "stress tests" year, the Fed gauge whether banks have enough capital to shareholders to withstand severe economic shock as the crisis of 2007-09, when taxpayers spent billions of dollars to maintain the industry afloat.
On Thursday, will be published the first stage of testing, the announcement that the 31 banks have fallen below the minimum of 5 percent of the capital of the first level.
But the hardest part of the test is March 11, when the Fed reveals if banks get approval for any anticipated increase in disbursements shareholders. Last year, four banks failed that obstacle, while only one fell below the first one.
Review next week takes a look under the hood of banks - which critics of Wall Street say they are "too big to handle" - by examining whether managers are really in control of their companies. The proof is increasingly difficult annually.
"If senior management ... cannot explain how these results occurred, (regulators) will have very little tolerance," said Ahson Pai, a partner at consulting firm SunGard, which helps large banks with tests.
Regulators overall have forced banks to borrow less to finance its activities after the crisis, and the stress tests are becoming increasingly important tool for the Fed to test the resilience of the industry.
It is expected that Deutsche Bank and Santander of Spain to fail the test next week, which was first reported by the Wall Street Journal. It is the first year that Deutsche part in the exercise, but it would be the second consecutive year that Santander misses the cut.
Both companies declined to comment.
Last year, the Fed surprised markets by rejecting dividend boost Citigroup, a blow to CEO Michael Corbat, who had been working hard to improve relations with regulators after the bank suspended the test under his predecessor in 2012.
US units of HSBC and RBS were the two who failed the second test. Zions Bancorp was the only bank to lose 5 percent hurdle
