Surprise! All Banks Pass Stress Test (Except Ally)

Tyler Durden's picture

 

In a stunning headline-making moment of clarity, it appears that all the major financials that the Fed monitors (except GMAC Ally) will survive a cataclysmic, Lehman-like moment based on their self-determined analytics of their deeply illiquid off-balance-sheet assets (and a comprehensive understanding of the co-dependence of all those assets). As Bloomberg notes,

  • *TESTS ASSUME HYPOTHETICAL SCENARIOS FOR 9 QTRS ENDING 4Q 2014
  • *FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST
  • *FED SEES 17 BANKS' TIER 1 COMMON RATIO ABOVE 5% IN WORST CASE
  • *GMAC ALLY ONLY STRESS-TESTED BANK SEEN WITH TIER 1 COMMON BELOW 5%
  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 20%

Is it any wonder that Government Motors wanted to IPO its GMAC/Ally business recently - with a 1.5% stressed Tier 1 ratio.

And another summary table:

And in chart format:

 

and for fun - only $48.4bn total losses from trading and countperty
exposure in a Lehman-like stress event for JPM and Goldman...

PR From The Fed:

The nation's largest bank holding companies have continued to improve their ability to withstand an extremely adverse hypothetical economic scenario and are collectively in a much stronger capital position than before the financial crisis, according to the summary results of bank stress tests announced by the Federal Reserve on Thursday.

 

Reflecting the severity of the stress scenario--which includes a peak unemployment rate of 12.1 percent, a drop in equity prices of more than 50 percent, a decline in housing prices of more than 20 percent, and a sharp market shock for the largest trading firms--projected losses at the 18 bank holding companies would total $462 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014 in the hypothetical stress scenario.

 

The Federal Reserve's stress scenario estimates are the outcome of deliberately stringent and conservative assessments under hypothetical, adverse economic conditions and the results are not forecasts or expected outcomes.

 

Despite the large hypothetical declines, the aggregate post-stress capital ratio exceeds the actual aggregate tier 1 common ratio for the 18 firms of approximately 5.6 percent at the end of 2008, prior to the government stress tests conducted in the midst of the financial crisis in early 2009. This is the third round of stress tests led by the Federal Reserve since the tests in 2009, but is the first year that the Federal Reserve has conducted stress tests pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Reserve's implementing regulations.

 

"The stress tests are a tool to gauge the resiliency of the financial sector," Federal Reserve Governor Daniel K. Tarullo said. "Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty."

Full PDF here:

DFAST_2013_results_20130307 by

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financial apocalyptic contagion's picture

haha was just explaining to a socialist classmate how these self-reported tests work and this headline made my job much easier

ZerOhead's picture

*FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST

This just in...

18 Banks say taxpayer losses are just a little under half a trillion at the moment...

Spider's picture

I believe all the banks but Ally also passed the "Armageddon scenario", where the oceans blow up, the sky falls, and the Dow Jones drops over 35 points.

Phew - that was close!

hedgeless_horseman's picture

 

 

Wow!  Look into the magical risk pool...we look great!

 

FASB approves more mark-to-market flexibility


April 02, 2009

Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board on Thursday voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value.

Seeking to resolve this situation, FASB's new guidance allows banks and their auditors to use "significant judgment" when valuing the illiquid assets such as mortgage securities.

http://articles.marketwatch.com/2009-04-02/news/30761323_1_fasb-chairman-robert-herz-illiquid-securities-financial-accounting-standards-board

The new guidance, which is expected to boost bank operating profits when they report first quarter results later this month, alters so called mark-to-market rules, which have required banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset.

Banks have complained that they have viable assets with strong cash flows that can't be sold because there is no market for them.

 

 

McMolotov's picture

Needs moar Skittle-shittin'!!!

WayBehind's picture

Who cares, we all know those books are cooked anyway ... keep calm and carry on ...

Manthong's picture

The one parameter that was not mentioned but implied in establishing the preconditions for the stress scenario was that the letters d, e, f, a, u, l and t are removed from the alphabet.

TheFourthStooge-ing's picture

.

Who cares, we all know those books are cooked anyway ... keep calm and carry on ...

...and don't forget that all of the banks, including Ally, received participation trophies.

McMolotov's picture

Will he smell of sulphur or embalming fluid?

Obchelli's picture

But But But

 

How can stocks ever drop 50% when they can not even drop 0.5% intraday?

And housing as tey say is already recovering?

James_Cole's picture

"All Banks Pass Stress Test (Except Ally)"

I thought Friday humour was tomorrow..?

TruthInSunshine's picture

No shit. The "new" FASB rules, even better than the old FASB "rules," where banks are about to receive EVEN MORE LUDICROUS leeway to mark their assets to unicornium-valuations:

 

Proposal Gives Banks More Freedom to Value Assets

Published: February 14, 2013

The board that sets American accounting rules moved on Wednesday to substantially reduce the use of market values in financial statements. The move, if adopted, would give banks more freedom to value financial assets as they deem appropriate.

 

Long live the Ponzi. Pass the HorseMcNuggets & Escolar tartare.

 

Rainman's picture

I'm shocked that the noble profession of public accounting has been criminalized !!

TheFourthStooge-ing's picture

FASB: Fuck America, Serve Banks

SnobGobbler's picture

so those crap MBS the fed is buying can be priced higher ya knowr; pretty fuckin' slick way to provide more (i)liquidity by my estimates. sounds like a "shitty deal" for us slaves.

I am more equal than others's picture

I call BULLSHIT!

Commercial real estate is overvalued by a factor of two to five because they've used whores like Cushman Wakefield and CBRE who have the analytical ability Bernake.  I've seen nothing but nonsensical crap come from these girls in red.  Will overvalue (blow you) for a fee.

francis_sawyer's picture

I'll label this as the 'ekm' moment

~~~

ht ~ Minsky

ParkAveFlasher's picture

Electrolytes.  It's what banks crave.

SemperFord's picture

Yup yup, Idiocracy in America is not decades ahead, it's already here because 99.99% percent of Americans, don't understand, don't know and don't care!

francis_sawyer's picture

I CARE!... but that's prolly why I have no friends & even my family hates me...

CPL's picture

Rest easy , like last time they all DIE underground.

 

All of them.  Time for a reset.  Goodbye to bad trash.  I'm now looking at alphabet agencies because of askance...they best check in.  Or they get their children hunting. 

 

you all have some juice to use otherwise to illustrate 'place'.  Mind and will.  Use it monkey's.

McMolotov's picture

I view these stress tests as similar to the pump that's been taking place in the market. If they can't coerce people to dump money into stocks by constantly propping up the market, they want them to be reassured that the banks are a completely "safe" place to store what meager savings they have, and they accomplish that task by having "stress tests" that the banks pass with flying colors.

None of this does a thing to instill confidence in me.

chunga's picture

Yeah.

Banks "pass" but they're stressing the shit out of everyone else.

johngaltfla's picture

There is not enough bullshit spray for this test.

 

 

lolmao500's picture

TEST SCENARIO doesn't include MARGIN CALL OF SEVERAL BILLIONS ON THEIR CDS if a major bank goes under...

NotApplicable's picture

Nobody gets called on CDSes, just ask AIG!

GolfHatesMe's picture

Just let the DTCC figure it out for you

max2205's picture

Ben Almighty...what say thee

Confundido's picture

Can we end the Fed then? What do we need a lender of last resort for? Or is it the lender of first resort? I am.... confundido!

SheepDog-One's picture

OH so on top of this weeks near 40 S&P points added, we'll get another 15 tomorrow, throwing in the certain full-retard jobs# blowout festival first thing in the morning!

Mark123's picture

The whisper number is 170 million new jobs added (based on seasonal adjustment since we know that 170 million were lost due to sequester).

McMolotov's picture

The collective IQ of this country will shoot up 170 points once Maxine Waters kicks the bucket.

Fiat Burner's picture

They must have forgotten the test for rise in interest rates.

NotApplicable's picture

Well, that would just be plain dumb. That's a market phenomenon.

Everybody knows the market is dead, dead, dead.

monopoly's picture

Thank God, I was worried there would be a problem if markets crashed. Feel much better now. So lets see, should I buy BAC or C....or both.

What a fucking circus we got ourselves into. Beyond words.

Mark123's picture

Um, why do we need stress tests any more, now that the Fed can print unlimited money and give to banks?

 

Oh, right, I forgot that this is just a trigger for stock pumping whores of wall streets back room operations.

Confundido's picture

Assumption: US Treasury holdings have a 0% risk weight.

SheepDog-One's picture

50% equity drop, 20% housing value decline, and banks STILL pass with flying carpets! WOW they're all teflon coated titanuim banks truly!

TheFourthStooge-ing's picture

.

50% equity drop, 20% housing value decline, and banks STILL pass with flying carpets! WOW they're all teflon coated titanuim banks truly!

...and they've Got What Plants Crave. They've Got Tungsten!

PAWNMAN's picture

Unusual that a privately held bank, with a majority of international shareholders, would be in charge of administering a stress test of U.S. banks. Amazing that this body grew to such a high level of influence. More like criminal.

ZippyBananaPants's picture

If they would have gave that kid a fucking ice cream cone maybe they would have passed.

Racer's picture
  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 20%

That is the official line.. the reality is

  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 0.50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 0.20%

 

infinity8's picture

"Ally" - gawd I laughed so hard when I first heard that name-change. This depression does have it's amusing moments.

SheepDog-One's picture

'Ally' name must have focus-grouped well....or it's an anagram for 'Ya'll be footin the bill'