31 Banks The Fed Is Watching Like A Hawk

The Federal Reserve’s bank stress test are getting a little more onerous and will affect more banks than they did under the last round of tests.

In the latest round of stress tests which are due in January, 31 of the largest lenders will be subject to some harsh hypothetical scenarios. Last time around just 19 banks were subject to the Fed’s scrutiny. The 12 new additions to the have $50 billion or more in assets and include some foreign subsidiaries.

Among the newcomers are Citizens Financial Group, a subsidiary of the Royal Bank of Scotland Group, and RBC USA whose parent company is the Royal Bank of Canada. The 31 banks on the list have Tier 1 common risk-based ratios ranging from 6.89% at M&T Bank Corp., according to the company’s third-quarter earnings release, to 15.96% at State Street Corp, SNL Financial reports.

There are a couple of big names missing from the list however including Toronto-Dominion Bank’s U.S. unit isn’t on the list though it has $199.5 billion in assets. SNL notes that BancWest Corp., a unit of BNP Paribas SA, was left off the list though it has $77.13 billion in assets; as was Taunus Corp., a unit of Deutsche Bank AG, with approximately $380.65 billion in assets.

The reason for their absence, according to SNL is that the capital plan rules do not apply to any bank holding company subsidiary of a foreign banking organization that is relying on certain earlier regulations. These exemptions last until July 21, 2015.

The Fed’s stress tests includes macroeconomic and financial market scenarios that firms must use, including U.S. unemployment rates as high as 13.05% and real GDP contraction nearing 8%. The big six banks, Bank of America., JPMorgan Chase, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs will be required to estimate potential losses stemming from a hypothetical global market shock including the worst case scenarios stemming from the Euro-debt crisis.

Sabeth Siddique, a director at Deloitte & Touche LLP and former assistant director of banking supervision and regulation at the Fed,told SNL Financial that the scenarios are more severe than in the last rounds of stress testing. “I think that is in part a testament to the continued difficult environment that we’re experiencing both globally and domestically,” he said.
The six firms are the usual suspects: Bank of America,Citigroup, Goldman Sachs Group,  JPMorgan Chase, Morgan Stanley and Wells Fargo.

Capital plans are due to the Fed by January 9, 2012. The other banks required to submit plans are: Ally Financial, American Express, Bank of New York Mellon, BB&T, Capital One Financial, Fifth Third Bancorp, Keycorp, MetLife, Morgan Stanley, PNC Financial Services, Regions Financial, State Street, SunTrust Banks and U.S. Bancorp.

In 2011, the Fed proved that its reviews of bank capital proposals are anything but a formality in the current environment, throwing up stop signs to planneddividend increases by Bank of America and, in October, MetLife, which prompted the insurer to suggest it could ditch its bank holding status. (See“Fed Shoots Down MetLife Dividend Hike.”)