The Fed's Annual "Stress Test" Is Out: 29 Of 30 Banks Pass, Zions Is This Year's Sacrificial Lamb

Tyler Durden's picture

It's mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed's stress test (for those who may have forgotten last year's farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results, can read here). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a "test", and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone's confidence has been boosted. So Buy stawks, and build your paper wealth!

WSJ summarizes the results:

The Federal Reserve's annual test of big banks' financial health showed the largest U.S. firms are strong enough to withstand a severe economic downturn, potentially clearing the way for banks to reward investors with dividends and stock buybacks.


The Fed said 29 of the 30 largest institutions have enough capital to continue lending even when faced with a hypothetical jolt to the U.S. economy lasting into 2015, including a severe drop in housing prices and a spike in the unemployment rate.


The results will factor into the Fed's decision next week to approve or deny individual banks' plans for returning billions of dollars to shareholders through dividends or share buybacks. The Fed's annual "stress tests" are designed to ensure large banks can withstand severe losses without needing a government rescue.


Under its "severely adverse" scenario—which projects a deep recession with surging unemployment, a steep drop in housing prices and a nearly 50% drop in equity prices over nine quarters—the Fed found the 30 banks would suffer loan losses of $366 billion. The Fed said banks are "collectively better positioned" to withstand such losses.




Bank of America was the lowest performer among the big banks, with a Tier 1 common ratio that dropped as low as 6% under the Fed's hypothetical scenarios. Bank of America would have lost $49 billion before taxes, the highest of any of its peers.

As always, our condolences to the bank that picked the short stick this year:

Only Zions Bancorp, a regional lender based in Salt Lake City, posted capital levels during the two-year downturn scenario that failed to meet the Fed's minimum standards. The Fed said Zions had a Tier 1 common capital ratio of 3.5%, below the Fed's 5% minimum. Zions has said previously it will likely resubmit its capital plan to the Fed in light of its selling certain debt securities as a result of the Volcker rule, which the Fed and other regulators adopted in December

And here is the truly funny part: in the baseline stress test scenario, the Dow Jones "plunges" to 11.4K in Q3 2014, and then somehow surges back to all time highs by Q4 2016! Does the Fed understand the word Stress?


And while the entire test is a farce, as the testing methodology is completely flawed, the following can not be good for HSBC...


... or for Discover and State Street:

Full CCAR below:


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PlusTic's picture

These clowns wouldn't understand risk if I skewed a bat into their tails!

knukles's picture

Well now, isn't that such perfectly statist symbolism.
"Zion's" Bank is the "sacrificial lamb"
Calling Vigilant Citizen


Au_Ag_CuPbCu's picture

Well if the DOW did plunge to 11.4 in Q3 then it stands to reason that it would in fact hit all time highs in Q4 given the amount of panic printing that would be taking place.  So see, the banks are fine.  /sarc

101 years and counting's picture

brought to you by the same "over confident" fucks that sent the world into a tailspin so bad in 2008, theyve had to print over $10 trillion to pretend we're not in depression.

LawsofPhysics's picture

Correct.  Come on man, you really think these crimminals are going to indict themselves?  There will be blood, there always is, history is very clear on this.

Boris Alatovkrap's picture

What are you expect of zionist!?

BTW, why are Zion Bankcorp in Salty Lake!? Maybe is typo, should be in Florida!

Canadian Dirtlump's picture

lol knuckles my man. I came in to say the same thing. I had Azazel, the scapegoat ritual, and tyler contravening his own terms of service as topics I was going to discuss.

Rainman's picture

Revenge play by the Fed. Zion's got $ 1.4B in TARP money and never paid it back. Also paid fines in '11 for a bunch of money laundering. MoMo owned and operated. Probably a 'fuck you ' for Romney somewhere in there too.

The_Dude's picture

CheezePopes taking one last swing at the Mormons (Zion is Utah based) as Romney exits stage left?

The.Harmless.Who's picture




Zionist Cunts!!!


Oh wait wrong thread! 


Oh well, Zionist cunts anyway, the lot of them Greenspan, Bernake, Yellen, and after she dies, Fischer! 



W74's picture

After Yellen kikes the bucket?

Doctor Who's picture

Zions bank has been the asshat of banks for years.   Let them die.  Nobody who knows who they are will care.  They're worse than Chase and Wells Fargo as far as treating people well.  Go credit union.

sixsigma cygnusatratus's picture

So, massive bank failures in 3...2...1...

1stepcloser's picture

They already failed.  Accunting trickery is the only thing left

Grande Tetons's picture

The Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector.

Can we get a visual on that?

GtownSLV's picture

So is Dingy Harry pissed, or pissed on?

GtownSLV's picture

And never has there been clearer indication its time to short Vegas Casinos if you haven't already.

101 years and counting's picture

a recession is unpossible in a fed model since it returns a #ref in cell E3, so this really is imnecessary.

knukles's picture

The sound of a thousand penises clapping

McMolotov's picture

Jeopardy response: What is the noise from a crowd of Obama supporters?

Dr. Engali's picture

I would've thought that sound to be anal queef's.

McMolotov's picture

True story: We were at my parents' house for a birthday last year, and we heard a really weird noise outside. My 8-year-old son said, "That sounded like a rapid queef!" I thought my mom would faint. I've never been more proud as a father.

Dr. Engali's picture

Lol. My wife would have had a heart attack.

Dr. Engali's picture

That is image painted in my head that I could do without...... thank you very much.

LawsofPhysics's picture

Oh no, the Mormons won;t be happy about this...

Look for Utah to seced.

skwid vacuous's picture

Their own magic hat sayeth that Zion's bank is perfectly solvent and will always be so, damnation unto the naysayers in DC!

LawsofPhysics's picture

In terms of real resources, Utah is just fine.  They also accept PMs for all debt, public or private.

Regardless of "magic", it sounds to me like they understand what real collateral is.

Caggge's picture

On a stress test like this, could they tell the truth? What if the truth was 90% failed? Would they tell the truth? This type of test is so meaningless because if there were bad results, they wouldn't and couldn't tell the truth.

Againstthelie's picture

So much wasted energy every year.

The risk of a Ponzi scheme to fail = 100%. The only remaining question is WHEN.

The Econ Ideal's picture

FT headline: "Stress tests find US banks would suffer massive losses in a crisis"

Federal Reserve stress tests on the biggest US banks found that Bank of America, Morgan Stanley, JPMorgan Chase and Goldman Sachs would suffer massive losses in a financial crisis, threatening their ability to return capital to shareholders.

Dr. Engali's picture

Zion's is the sacrificial lamb? Now that sounds strangly ironic on many levels. Just a Freudian slip I'm sure.

ebworthen's picture

Yeah, headquartered in Utah, home to a lot of Mormon money - and the state with the highest use/abuse of prescription medications and porn downloads.

Surging Chaos's picture

I find it hilarious that nothing is mentioned about doing a stress test if interest rates rose sharply upward. The Fed secretly knows that every TBTF bank would immediately become insolvent if interest rates ever spiked. Why else would we have ZIRP for 5+ years and still going?

ebworthen's picture

Barney Frank on CNBC sporting a Santa beard saying his law has made everything better.

What a fucking joke.  DOJ going after Toyota with a vengeance but Jon Corzine with his toes in the sand somewhere.

The banks are insolvent, just like 2007, and pushing home equity, reverse mortgage, and liar loans all over again.

This entire financial system is a Ponzi, a gigantic house of cards, and it just rolls on.

Payne's picture

Demonstrates the uneasy relationship the LDS church has with the FED.  Gold lovers vs. Gold manipulators

Atlas Crapped's picture

See, I always knew it was those effin Zionists!!

Inthemix96's picture

A bank called Zion??

You have to be taking the right fucking piss with this like.

Zion??  Fuck me, its the bastard twilight zone round here.

Shocked I tell you, fucking straight up, no bull, shocked.


Fuck off.


FieldingMellish's picture

I like to think of it as hiding in plain site.

Ban KKiller's picture

GAAP or no, who cares about made up numbers meaning nothing? Oh, right, we need fodder for the sheeple.Tell me again, are derivatives assets or liabilities in a market where rates are rising?

Some kind of coffee liquor over ice sounds good right now. Think I will go grab one downstairs. 

Sick's picture

These tests are a complete joke without mark to market accounting.  All these banks are insolvent in the real world but with fantasy accounting they are as good as gold.

Cacete de Ouro's picture

This will surely lead to the Protests of the Elders of Zion

nakki's picture

Banks that are broke own the FED. Its like drug addicts owning Betty Ford clinic and allowing drinking and druging and saying everything is fine.

Midnight Rider's picture

But, can they withstand the stress of trillion in free Fed money being pulled from their greedy hands?

Baby Eating Dingo22's picture

How many of the taxpayers that are living paycheck to paycheck and bailed out these greedy pricks can say the same thing: My financial health has improved and it can withstand a severe economic downturn?

itstippy's picture

"Under its "severely adverse" scenario—which projects a deep recession with surging unemployment, a steep drop in housing prices and a nearly 50% drop in equity prices over nine quarters—the Fed found the 30 banks would suffer loan losses of $366 billion. The Fed said banks are "collectively better positioned" to withstand such losses."

The key word here is "loan".  The banks could survive their projected "loan losses" because they're so damned robust.

However, these 30 so-called "banks" no longer do much traditional banking, write many loans, or keep loans on their books.  Just what type of losses would these 30 banks face in their other, more lucrative and highly leveraged, financial activities?   

Westcoastliberal's picture

Bullshit X Bullshit = Moar Bullshit.  There, fixed it for 'ya.

1stepcloser's picture

How do you stress test mark to magic?

Dan Conway's picture

Couple of thoughts:

1.  What does the Dow dropping have anything to do with bank loan losses?  I thought bank's lent money not buy stocks (HAHAHAHAHAHAHA).

2.  On the two charts presented, zions was below the median. 

It seems to me that the reality is that the rankings should be read as last to first.  What a farce!

PhysicalRealm's picture

Ha -- Vietnam did the coolest thing - they sentenced a banker to death:

"A court in the Central Highlands on Thursday gave the death sentence to a Vietnam Development Bank (VDB) executive and several life sentences to others involved in a hundred-million-dollar scam."