WASHINGTON — The US Federal Reserve announced Monday it will publish results of its stress tests for the country’s largest banks on Thursday, aimed at seeing if they are fit to survive another massive recession.
The test results will cover 19 large bank holding companies, examining how they would fare if the country experienced a recession marked by a 50 percent drop in stock prices, a 21 percent fall in housing prices, and joblessness soaring to 13 percent — all the while being buffeted by an even worse recession in Europe.
The stress scenario “is not the Federal Reserve’s forecast for the economy,” the central bank cautioned.
But it “was designed to represent an outcome that, while unlikely, may occur if the US economy were to experience a deep recession at the same time that economic activity in other major economies contracted significantly.”
The Fed said that stress tests conducted since 2009 led to the banks increasing their core “tier one capital” by $339 billion to $759 billion by the fourth quarter of 2011.
Part of that increase, the Fed said, was due to its pressure for the banks to reduce or eliminate dividends to shareholders and instead hold the accumulated earnings as tier one capital.
After the 2011 tests, “the Federal Reserve allowed those financial institutions with well-developed capital plans and capital positions that would remain strong even under adverse conditions to increase distributions, but at a prudent pace that would ensure continued increases in capital,” it said.
The test results will be released at 4:30 pm (2030 GMT) Thursday, March 15.