Fed Corrects Stress Test Data Reported One Day Ago

Econintersect:  Just one day after publication of the 2014 bank stress test results the Fed has issued a correction of the projected Tier 1 common ratios for half of the banks under the severely adverse scenario.  For 11 of banks the percentages were changed by only 0.1%, all positive except for Bank of America whose capital ratio declined from 6.1% to 6.0%.  M&T Bank (now 6.2%) and Northern Trust Corporation (now 11.7%) both improved by 0.3%.  HSBC Bancorp decreased by 0.2% to 6.6% and American Express Company fell 0.5% tp 12.1%.

Here is the press release from the Fed:

The Federal Reserve on Friday issued corrected results for the 2014 Dodd-Frank Act stress test.  For 26 of the 30 firms, the correction led to either no change or at most a 0.1 percentage point change in the firms’ minimum, post-stress tier 1 common capital ratios in the severely adverse scenario.  The change led to a 0.3 percentage point increase at two firms, a 0.2 percentage point decrease at one firm, and a 0.5 percentage point decline at another.

The capital ratios were adjusted to address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon.

The attachment reflects the updated minimum tier 1 common capital ratios and the changes from the prior release.  The Federal Reserve will reissue a full result paper on Monday with corrections as they affect all capital ratios.

The following graph was prepared for the GEI News story on the stress test results yesterday (21 March 2014).

The revisions have little impact on the overall conclusions.  M&T Bank went from slightly under the green reference line to slightly above and Bank of America went from exactly on the same line to slightly below.  These changes should have no influence on how the Fed will assess capital management plans submitted by the banks, report from the Fed due next week (26 March).

John Lounsbury

Sources:

• Dodd-Frank Act Stress Test 2014: Revised Projected Minimum Tier 1 Common Ratios March 21, 2014 (Federal Reserve Board, 21 March 2014, pdf)

• Press Release, Federal Reserve Board, 21 March 2014

• Most Banks Pass Stress Tests (GEI News, 21 March 2014)

• Dodd-Frank Act Stress Test 2014: Supervisory Stress Test Methodology and Results (Board of Governors of the Federal Reserve System, March 2014, pdf)