Fed finds 29 banks can outlast severe crisis

All but one of the nation's 30 largest banks are financially strong enough to withstand a severe recession, the Federal Reserve said Wednesday.

Zions Bancorporation of Salt Lake City, Utah, would have a lower capital cushion against losses in a sharp downturn than the Fed requires, according to results of the central bank's annual "stress test." The firm's Tier 1 common ratio, which measures high-quality capital as a share of risk-weighted assets, would be 3.5%, below the Fed's 5% minimum.

Zions, which operates more than 480 branches in the western U.S., had net earnings of $294 million in 2013, up from $179 million in 2012.

The Fed is expected to announce next week whether it will reject the plans of Zions or any of the other large banks to issue dividends or buy back stock shares. Other banks' plans could be denied even if they meet minimum capital standards if the Fed determines that their supervision is lacking. A firm whose plan is rejected has 30 days to modify and resubmit it.

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Since 2009, the Fed has required banks with more than $50 billion in assets to undergo stress tests to ensure they can endure the kind of shocks that rocked the banking system and led to huge government bailouts during the 2008 financial crisis. An additional 12 banks were subjected to the test this year because they met the $50 billion asset threshold.

As a group, the 30 banking holding companies would have a Tier 1 common ratio of 7.6%, according to the Fed's "severely adverse scenario." That's higher than the 5.5% ratio they posted in 2009. Last year, the 18 banks tested had a 7.7% ratio.

Some of the nation's largest banks had common ratios that were among the lowest of the financial institutions participating. The ratio was 6% for Bank of America, 6.3% for J.P.Morgan Chase, and 6.1% for Morgan Stanley.

Under the extreme scenario, the Fed assu! med a rise in the unemployment rate — now 6.7% — to 11.2%, a nearly 50% drop in stock prices and a decline in home prices to 2001 levels. Loan losses for all 30 banks would total $366 billion in the nine quarters ending in the fourth quarter of 2015, while net income before taxes would be $271 billion.

The biggest banks would experience the sharpest losses, with Bank of America losing $49 billion; Citigroup, $45.7 billion, and JPMorgan Chase, $37.6 billion.