Kroll Bond Rating Agency Publishes Comment on U.S. Banks: Stress Tests & Quantitative Easing

NEW YORK--(BUSINESS WIRE)--

Kroll Bond Rating Agency (KBRA) has released a new research report entitled "U.S. Banks: Stress Tests & Quantitative Easing." The report makes the following key points:

• The Board of Governors of the Federal Reserve System (the "Board" or "Fed") recently completed another iteration of the Dodd-Frank Act Stress Test (DFAST) and the related Comprehensive Capital Analysis and Review (CCAR) stress tests.
• As capital levels continue to grow and asset quality improves, resiliency to a severe recession is building among the largest BHCs. In KBRA's view, both the quantitative and qualitative aspects of the stress testing process are becoming more rigorous each year. That said, KBRA is concerned that distortions in the credit markets caused by the Fed's large scale asset purchases (euphemistically known as "quantitative easing") could be creating future credit problems for U.S. and foreign banks.
• KBRA believes that the exercise is comparatively harsh on many regional banks, with capital ratios severely reduced under the stress scenarios despite actual crisis performance, charge-off history, and risk profiles.
• For major U.S. banks, the global market shock scenario remains a key component of the annual stress testing. If one of these large banks experienced actual trading losses of this magnitude, market confidence would likely evaporate, causing liquidity and funding to quickly become key issues. As KBRA has noted in previous reports, liquidity, not capital, is the primary indication of a bank's ability to withstanding market stress.
• While the U.S. banks in general comfortably passed this year, certain subsidiaries of foreign banks were cited as having serious qualitative issues. In particular, the public comments by the Fed with respect to Deutsche Bank DB and Banco Santander SAN were particularly harsh and suggest the existence of larger issues with respect to internal systems and controls at these institutions.

To view the report, please click here.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

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