U.S. Bancorp Exceeds Fed's Minimum Capital Level Under Stress Test
June 23 2016 - 4:00PM
Dow Jones News
By Rachel Louise Ensign
U.S. Bancorp has the capital to keep lending in a severe
economic downturn, the Federal Reserve calculated Thursday in the
first stage of its annual stress tests.
At the low point of a hypothetical recession, U.S. Bank's common
equity Tier 1 ratio, which is a measure of high-quality capital as
a share of risk-weighted assets, was 7.5%, exceeding the 4.5% level
the Fed views as a minimum, the central bank estimated.
Minneapolis-based U.S. Bank's Tier 1 leverage ratio, which
measures high-quality capital as a share of all assets, was 7.6%,
exceeding a 4% minimum.
The stress tests simulate a world-wide recession. The results
were under the Fed's "severely adverse" scenario of financial
stress, which this year includes a 10% U.S. unemployment rate,
significant losses in corporate and commercial real-estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to minimum levels may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday. That day the banks can choose to announce
whether they are raising their dividends or buying back more
shares, important for enhancing shareholder returns.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
June 23, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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