– This is the script of CNBC's news report for China's CCTV on June 23, Friday.
Welcome to CNBC Business Daily, I'm Qian Chen.
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U.S. banks made it through the latest round of stress testing relatively unscathed, setting investors up for news next week of payouts from the industry's biggest names.
Testing results released Thursday by the Federal Reserve show that the 34 institutions under scrutiny have enough capital to make it through the two scenarios regulators posed - one akin to the financial crisis and another entailing a shallower downturn.
Under the scenarios, the banks tested "would experience substantial losses." In the most severe scenario, bank losses are projected to be $493 billion.
However, in total, the institutions "could continue lending to businesses and households, thanks to the capital built up by the sector following the financial crisis."
Fed Governor Jerome H. Powell said in a statement, that ""This year's results show that, even during a severe recession, our large banks would remain well-capitalized,and this would allow them to lend throughout the economic cycle, and support households and businesses when times are tough."
But in terms of whether the banks have enough top-quality assets compared to liabilities, Thursday's results indicated that the institutions were on safe ground. That measure, called the tier-one capital ratio, was exceeded by all 34 banks. As a whole, the industry would see its current tier-one ratio fall from 12.5 percent to 9.2 percent. For individual banks, the Fed requires a level of 4.5 percent.
[GERARD CASSIDY, RBC Capital Markets Managing Director & Banking Analyst] "It really does show you the strength of the US banking system coming out of the crisis. Do we really need to do these tests every year? And in the treasury proposal that was issued last week, their recommending that goes to a biennial test and not an annual test, because the banks are so strong."
Thursday's results are the first in a two-step process, with the second and more important happening Wednesday when the Fed will approve or disapprove the banks plans to return capital to shareholders. Indications are that some of the largest banks want to return more than 100 percent of profits.
That would indicate a major change in confidence on the part of both banks and regulators as the institutions would begin actually reducing capital positions.
The tests marked the third straight year the banks all met the Fed's standards for health and could boost arguments from Republican legislators and President Donald Trump for loosening regulations.
[HARVEY SCHWARTZ, Goldman Sachs president and co-COO] "I don't know what 21st century glass stegall means, that's not something we would think would help us best serve our clients. remember glass stegall, that's late 90s. the firm went public in late 90s. we're a vastly different org... more global, more capital demands from the clients. As you mention, we are now in online lending with consumers. So i think the nature, the services in the natures of things our clients want from global financial services, require large banks."
CNBC's Qian Chen, reporting from Singapore.