Fed Stress Test Results; Lawmakers vs. Regulators on TBTJ; Goldman Changes Promotion Policy

Receiving Wide Coverage ...

Reaction Split on Stress Test Results: Seventeen of the 18 largest banks have enough capital on hand to weather a sharp economic downturn, according to the first set of results from the Federal Reserve's latest stress tests. Full explainer, plus graph, of the results are available in this American Banker article. You'll notice Ally Financial standing out as the only bank failing to meet the Fed's requirement of a minimum Tier 1 common capital ratio of 5% with two other firms — Goldman Sachs and Morgan Stanley — seeing their Tier 1 common ratio fall below 6%. (The Financial Times focuses on Goldman Sachs' performance in this round up of results, headlined "Goldman exposed to $20bn loss in a crisis.") Reaction to the overall results thus far appears mixed. "Banks Health on the Mend," declares this Journal headline, with one analyst noting "One way to address too big to fail is to keep capital levels too onerous in order to have the banks shrink. These results are pretty much in line with that." But others argue banks fared well because the Fed went too easy and that there are vulnerabilities the tests fail to account for. "The derivatives market is huge — $600 trillion — and a potential source of instability for the banks, though you are likely to see little indication of that in the Fed's stress tests," writes Fortune senior editor Stephen Gandel. Perhaps David Reilly sums it up best in his "Heard on the Street" column: "Overall, many aspects of the test should soothe investors still worried about bank strength. But they shouldn't engender complacency about the need to keep shoring up the financial system." Meanwhile, Citigroup has already publicized its request to buy back $1.2 billion of shares without seeking a dividend. The FT believes the Fed's stress test results may ultimately rein in U.S. bank payouts. The Federal Reserve is expected to respond to Citi and other requests next week.

Lawmakers vs. Regulators: Plenty of coverage has been devoted to the contentious Senate Banking committee hearing in which lawmakers — including Elizabeth Warren and Jeff Merkley — blasted regulators over their handling of money-laundering cases. "We're working on this investigation with the Justice Department, but at the end of the day it's the Justice Department's sole prerogative to determine who to prosecute, when to prosecute and what to charge," David Cohen, Treasury undersecretary for terrorism and financial intelligence, said when pressed over the lack of criminal prosecutions in the recent money-laundering settlement with HSBC." So, to recap the ongoing "too big to jail" debate: the DOJ blames Congress, Congress blames the regulators, and the regulators blame the DOJ. Financial Times, Reuters, Washington Post, American Banker