Banks Capable of Surviving Crashes and Recession, Stress Tests

Banks Capable of Surviving Crashes and Recession, Stress TestsResults of the stress tests conducted by the Federal Reserve were released this Thursday and it was found that most of the large banks in the country will able to survive the crashes and recession in markets.

The tests evaluated the capital levels of banks in the adversities and helped the government to validate its efforts of protecting its financial systems. The test results are quite positive even after four years of the financial crisis.

In addition, it has paved way for the healthiest institutions to buy more shares and increase the dividends as well. "Significant increases in both the quality and quantity of bank capital help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty", said Daniel K. Tarullo, a Federal Reserve governor.

The stress tests are good tools to measure the reliability of the financial sector, he added. After the crisis in the market, banks like Citigroup and Bank of America were prevented by the federal regulators from increasing their dividends or even repurchasing any shares.

The stress tests have led to tension between regulators and banks since they reveal the details of losses that bank may suffer at times of stress. The friction occurred over the issue of how to conduct the tests and what data to release.