The Federal Reserve has asked the 31 largest US banks to undergo a new stress tests. The hypothesized scenario will be that of a strong recession: GDP in free fall to -8% and unemployment to 13%. Large-cap institutions, those with more than $50 billion in assets, will have to demonstrate that even in nightmarish conditions like these, they would be able to ensure dividends and buybacks.
The six leading banks by transaction volume (Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo) will face even tougher tests. They will have to prove their ability to react in case the precipitate of the European crisis would cause a global market shock. Their plans must be sent by January 9 to the US Central Bank for evaluation.
