Florida Banking August 2023

STRAIGHT TALK FROM THE PRESIDENT’S DESK

STRESS TESTS SHOW OUR NATION’S BANKS ARE STRONG AND DIVERSE

BY ALEJANDRO “ALEX” SANCHEZ, FBA PRESIDENT AND CHIEF EXECUTIVE OFFICER

H ey, talking heads on TV business shows, take notice of the facts: On June 28th, the Federal Reserve Bank of the United States stress-tested the nation’s largest banks and concluded that they are well positioned to weather a severe recession and to continue lending to households and businesses even during an economic downturn, according to the results of Dodd-Frank Act-mandated stress tests.

United States has the most diverse, well-capitalized, and safest banking industry globally. All 23 banks above $100 billion in assets that were tested remained above their minimum capital requirements during the hypothetical recession, despite total projected losses of $541 billion, according to the Fed. Under stress, the aggregate common equity risk-based capital ratio — which provides a cushion

And while the tests were for the nation’s largest banks, it confirms what regulators, the FBA and others have said, which is that there is no safer place to deposit your hard-earned money than an FDIC insured bank account. Talking heads claim to be experts, and unfortunately have a platform to express their opinions about subjects they know little about. It is important that groups like the FBA fight back against these so-called experts. America needs a diversity of banks to fund an economy dominated by small businesses where 60 percent of Americans work. Most of the funding for those

against losses — is projected to decline by 2.3 percentage points to a minimum of 10.1 percent. This year’s test modeled a severe global recession with a 40 percent decline in commercial real estate prices, a substantial increase in office vacancies, a 38 percent decline in house prices and an unemployment rate peaking at 10 percent. For the first time this year, the Fed conducted an exploratory market shock on the trading books of the largest banks, testing them against greater inflationary pressures and rising interest rates. The Fed said the exploratory market shock will not contribute to banks’ capital requirements

“THE FEDERAL RESERVE BANK OF THE UNITED STATES STRESS-TESTED THE NATION’S LARGEST BANKS AND CONCLUDED THAT THEY ARE WELL POSITIONED TO WEATHER A SEVERE RECESSION AND TO CONTINUE LENDING EVEN DURING AN ECONOMIC DOWNTURN.”

small businesses comes from community and regional banks. However, we also need a strong sector of large banks to ensure that large American corporations have access to credit, rather than turning to banks in China that continue to balloon in size in global rankings. The

but was used to further understand the risks with their trading activities and to assess the potential for testing banks against multiple scenarios in the future. The results showed that the largest banks’ trading books were resilient to the rising rate environment tested.

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