Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

European banks ace U.S. Fed's stress test, show strong capital levels

Economy Jun 24, 2022 16:01
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. A logo is pictured on the Credit Suisse bank in Geneva, Switzerland, June 9, 2022. REUTERS/Denis Balibouse 2/2

By Michelle Price and Sinead Cruise

WASHINGTON/LONDON (Reuters) -The U.S. units of major European lenders including Deutsche Bank (ETR:DBKGn), Barclays (LON:BARC) and Credit Suisse (SIX:CSGN) sailed through the Federal Reserve's annual "stress tests" on Thursday, showing they hold enough capital to weather an economic shock.

For the seven European bank subsidiaries the Fed oversees with more than $100 billion in assets, the average capital ratio -- a measure of the cushion a bank has to withstand potential losses -- remained well above the regulatory minimum of 4.5%.

It was also higher than the average ratio for the broader group of 34 banks tested, according to a Reuters analysis of the results.

The average capital ratio for the seven European lenders stood at 15.2%, compared with 9.7% for the 34 banks.

Deutsche Bank's U.S. operations had the highest ratio of all banks at 22.8%, while Credit Suisse was the third-highest of the group with a ratio of 20.1%. HSBC was the straggler of the foreign pack with a ratio of 7.7%.

However, Credit Suisse's core capital ratio suffered the biggest fall of all the banks tested under the severe stress scenario, eroding by more than 7 percentage points from its starting point. HSBC's buffer fell the second most, dropping more than 6 percentage points.

Under its annual stress test exercise established following the 2007-2009 financial crisis, the Fed assesses how banks' balance sheets would fare against a hypothetical severe economic downturn. The results dictate how much capital banks need to be healthy and how much they can return to shareholders.

This year's severely adverse scenario saw the economy contract 3.5%, driven in part by a slump in commercial real estate asset values, and the jobless rate jumping to 10%.

The other four European subsidiaries tested were UBS America Holdings, Santander (BME:SAN) Holdings USA, and BNP Paribas (EPA:BNPP) USA.

While the scenarios were devised before Russia's invasion of Ukraine and a sharp jump in inflation, the tests should reassure policymakers that Europe's top lenders are resilient enough to withstand a possible recession this year or in early 2023.

The Bank of England said this month it was satisfied lenders were no longer "too big to fail," although it did call for greater clarity on how much liquidity three major banks including HSBC would require if they needed to be wound down in a future crisis.

The European Banking Authority is scheduled to run its next EU-wide stress test in 2023 but investors are on high-alert for evidence of a fall in asset quality at European banks, as borrowing rates begin to rise from historic lows.

In 2020 the Fed changed how the test works, scrapping its "pass-fail" model and introducing a more nuanced capital regime.

European banks ace U.S. Fed's stress test, show strong capital levels

Related Articles

Ukraine and Russia: What you need to know right now
Ukraine and Russia: What you need to know right now By Reuters - Jul 02, 2022 11

(Reuters) - Powerful explosions rocked the Ukrainian city of Mykolaiv early on Saturday, the mayor said, a day after authorities said at least 21 people were killed when Russian...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Arno Pfohl
Arno Pfohl Jun 24, 2022 16:51
Saved. See Saved Items.
This comment has already been saved in your Saved Items
stress test is a simulation tool that's hypothetical. .. this is reality... these asymmetrical information articles... we are literally in the worst recession and media thinks it's all flowers..
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email