By Emily Glazer
J.P. Morgan Chase & Co. has the capital to keep lending in a
severe economic downturn, the Federal Reserve said Thursday in the
first stage of its annual stress tests.
At the low point of a hypothetical recession, J.P. Morgan's Tier
1 common ratio, which measures high-quality capital as a share of
risk-weighted assets, was 6.5%, above the 5% level the Fed views as
a minimum allowance. J.P. Morgan's Tier 1 leverage ratio, which
measures high-quality capital as a share of all assets, was 4.6%,
above the 4% Fed minimum.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to the Fed minimum may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday.
The tests simulate a substantial weakening in global economic
activity, huge declines in asset prices, and a large increase in
financial market volatility. The Fed's "severely adverse" scenario
in the U.S. results in unemployment hitting 10% in mid-2016, real
gross domestic product falling about 4.5% by the end of 2015 and a
25% decline in house prices. In addition, the test's "severely
adverse" scenario assumes a jump in oil prices to about $110 a
barrel.
Write to Emily Glazer at emily.glazer@wsj.com
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