Banks That Failed Fed's Stress Test Cry Foul

WASHINGTON, DC—Depending on how you look at the results, the Federal Reserve’s release in mid-March of its annual stress test on the leading 19 US banks either shows that safeguards put in place since the economic downturn are working, or that the government is far too stringent in its methodology. The latter claim comes from the four banks—New York City-based Citi and MetLife, Atlanta-based SunTrust and Detroit-based Ally Financial—that were deemed by the Fed to have failed the Comprehensive Capital Analysis and Review test.

Granted, the Fed said in a statement that the stress test scenario estimates “are the outcome of deliberately stringent and conservative estimates under hypothetical, adverse conditions.” The scenario, enacted to see if the banks could handle another crash in the market, included a peak unemployment rate of 13%, a 50% drop in equity prices and a 21% decline in housing prices. “Strong capital levels are critical to ensuring that banking organizations have the ability to lend and to continue to meet their financial obligations, even in times of economic difficulty,” the Fed said.