Stress Tests: Bank Customers Have No Reason To Fret
By Lauren Young
NEW YORK, March 14 (Reuters) - Bank customers shouldn't stress out over the latest U.S. bank stress test results.
The Federal Reserve on Tuesday gave passing grades to 15 of 19 banks, including JP Morgan Chase & Co, Bank of America Corp and Wells Fargo & Co.
Citigroup Inc, the nation's No. 3 bank, along with Ally Bank, ranked among the losers.
What does the Fed's assessment mean for consumers?
Greg McBride, senior financial analyst at Bankrate.com, says banks that passed the test may boost lending activity. Consumers who use a bank that failed to pass should not expect any major changes.
Here are excerpts from an interview with McBride:
What are the stress tests?
The Federal Reserve, as the primary bank regulator, puts major financial institutions through a very dire economic scenario to assess what condition the institutions would be in, and specifically, whether they have sufficient capital to weather a storm and to continue lending should a similar economic scenario unfold.
What if you have accounts at a bank that didn't pass?
The stress test results are not an indication of the present-day condition of the banks tested, so there are no worries for depositors. Just make sure the money you have in any bank or credit union is fully covered by federal deposit insurance. (The limit currently is $250,000.)
Will the stress test results make it easier to get a loan from a bank that got a passing grade?
It won't ease loan standards, but it could potentially make lenders that have adequate capital cushions more comfortable in now ramping up their lending.
Is there any connection between new bank fees and the stress tests?
New bank fees are related primarily to new banking regulations that have impacted bank revenues. The stress tests over the past several years have prompted regulators to require higher levels of capital from banks, and there are a multitude of ways banks can build capital cushions, such as shedding non-core assets, or boosting earnings through things like additional fee income.
If my bank did pass, does that mean I can expect higher interest rates or better offerings or anything else?
The stress tests are unlikely to have a material effect on the interest-rate environment. Instead, the Federal Reserve expects to keep short-term interest rates on hold until late 2014 and the outlook for both the health of the U.S. economy and inflation are the drivers of interest rates.