Stress test results: most banks fine, Goldman struggles

It's not a problem though, says the bank.

Bank stress tests have come round again - and almost all banks are fine. 

Is this a surprise? What actually goes on in a stress test? Well basically, the FED pitches banks against hypothetical economic scenarios, seeing whether they'd stand up to them - which is really testing whether they have a sufficient cushion of capital in the case of "deep global recession". So stress tests are an attempt to safeguard against another 2008 scenario. But now, a few years on from the crisis, the tests are more being used as a gateway for bank payouts. Of the 18 tested, only one failed - (Ally), and for the 17 that passed the tests will pave the way for increased dividends and share buybacks.

Interesting weaknesses showed up in the case of Goldman Sachs - which finished third from last.

Here's the FT:

Goldman, normally renowned for its resilience, would suffer a $20bn loss in the depths of the hypothetical crisis and its ratio of core “tier one common equity” capital against risk-weighted assets would fall to 5.8 per cent, compared with a minimum requirement of 5 per cent, the Fed said.

..but the bank doesn't think this will be much of a problem:

Howard Chen, bank analyst at Credit Suisse told the FT: “Importantly, we do not believe this negatively impacts our capital return assumptions."

Aside from the test results themselves banks had another concern: whether other banks would jump the gun and announce plans for payouts to shareholders early, like JP Morgan did last year. Some called it a prisoner's dilemma scenario - if one bank goes, they all do. But the Fed asked banks not to make public their plans before next week's announcement.

Here's the chart - also available here, amongst other details.


Goldman Sachs building. Photograph: Getty Images.
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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.