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Three large banks fail latest Federal Reserve stress tests

March 13, 2012|By Jim Puzzanghera
  • Citibank owner Citigroup Inc. failed a key test in a new round of bank stress tests, the Federal Reserve said.
Citibank owner Citigroup Inc. failed a key test in a new round of bank stress… (Bloomberg News )

Reporting from Washington — Ally Financial Inc., Citigroup Inc. and SunTrust Banks Inc. failed a key test in a new round of stress tests to see if the nation's 19 largest banks could withstand a severe economic downturn, the Federal Reserve said Tuesday.

The Fed tested the banks to see if they had enough reserves to handle an economic shock in which unemployment would increase to 13%, the Dow Jones industrial average would lose half its value and housing prices would fall an additional 21%.

Under such a scenario, losses at the 19 largest banks would total $534 billion over the 27-month duration of the Fed's stress test scenario. Despite the severity of the downturn, the Fed said the results showed that the largest banks are in a stronger financial position than they were after the first round of stress tests in 2009 in the months after the financial crisis.

The amount of one key measure of bank capital increased to $759 billion in the fourth quarter of 2011 from $420 billion in the first quarter of 2009, the Fed said.

Ally, Citigroup and SunTrust had a key capital ratio below the 5% minimum the Fed set under the test. A fourth major bank failed a different metric, but it was unclear which bank that was.

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