February 1, 2018 / 9:04 PM / a year ago

Fed outlines yearly 'stress test' standards for Wall Street

FILE PHOTO: A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC, U.S. on October 12, 2016. REUTERS/Kevin Lamarque/File Photo

WASHINGTON (Reuters) - The Federal Reserve on Thursday outlined standards for its annual ‘stress test’ of the largest banks to see how Wall Street would fare in a future financial crisis.

Large lenders like JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) will have to report on whether their business could survive for long if the unemployment rate jumped to 10 percent and the economy was otherwise rattled. The test looms large at those banks, as the Fed must approve before the banks can distribute their extra capital to investors.

Thirty-eight lenders in all will have to report by April 5 on how their bottom lines will be impacted by an economic shock and the Federal Reserve will grade the banks by June 30. The 18 largest and most complex lenders will have to undergo the most rigorous version of the test, which includes a quantitative test of a firm’s books, and a scrutinizing evaluation of its operations by bank regulators.

The global economy is stronger than it was last year, leading to a somewhat tougher version of the test, as Fed officials have said they want the test to be more rigorous in good economic times than bad.

In 2017, all 34 banks tested by the Fed passed. [nL1N1JP1U9]

Reporting By Patrick RuckerEditing by Chizu Nomiyama

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