Assessing the Impact of the Bank Capital Stress Tests

Analyst: Bill Bradway

May 15, 2009

On May 7th, the Federal Reserve released details on the expected losses and adequacy of capital and reserves for 19 of the largest US financial institutions. All 19 institutions have at least one FDIC insured bank charter but then the similarities disappear: 12 are full service commercial banks, two are custody/trust/clearing banks (Bank of New York Mellon, State Street), two are investment banks (Goldman Sachs, Morgan Stanley), one is primarily a credit card issuer (American Express), one is an insurance company (Metropolitan Life), and one is an auto loan and mortgage lender (GMAC).

The Federal Reserve’s analysis will require 10 of the 19 institutions, eight of which are full service commercial banks, to raise a collective $74.6 billion in fresh capital to meet the Supervisory Capital Assessment Program’s (SCAP) stress test requirements.

• Will this stress test process affect only the institutions that have to raise capital?
• Will the stress test process have long term consequences for the banking industry?
• Should FinTech vendors reassess their current and prospective client relationships?

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