The Federal Reserve declared on Tuesday that 15 out of 19 biggest financial companies would have the capacity to withstand deep recession. These 15 financial companies have got sufficient resources to cover up losses in case of another 21 percent decline in housing prices, 50 percent drop in share prices and unemployment rate of as high as 13 percent.
In the Fed’s worst case economic scenario, three banks – Sun Trust, Citigroup and Ally Financial would require additional capital from the government or investors. Insurer Metlife would also require financial assistance. All four banks would require submitting programs about the way they would raise their capital in order to protect them in a recession.
Citigroup believed that it is one of the best capitalized large banks all over the world. Nevertheless it acknowledged that it would be unable to increase its divided as expected, and would present a modified capital plan to the Fed.
The Fed informed that the country’s 19 biggest banks might suffer a loss to the tune of $534 billion. But the larger number of banks would have the capacity to absorb the losses since they have raised their capital by more than $300 billion from the beginning of 2009.
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