ROSA by any other name

5 April 2016 By Gina Chon Follow @GinaChon

Return on stressed assets shows which holdings get handicapped most in the annual exam of bank balance sheets. Selling them should reduce risk, increase capital returns and even help claims that cost of capital is falling. But it also leaves lenders with ever more similar assets.

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The 33 largest banks by assets in the United States have to submit their capital plans and internal stress-test exam results by April 5. Any lender with assets of at least $50 billion falls under the review. The tests assess whether banks can survive an economic downturn in a scenario provided by the Fed. The watchdog then performs its own tests, with the results determining whether a firm can increase its dividends or stock buybacks.

This year’s scenario includes a global recession in which the U.S. unemployment rate rises by 5 percentage points to 10 percent and yields on short-term Treasuries turn negative. Banks with the largest trading operations also have to factor in a global market shock and a default of their largest counterparty.

The Fed will announce the results by the end of June.

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