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Apr 25, 2009

Fed Stress test for 19 biggest US Financial Institutions

US Federal Reserve is putting the 19 biggest US financial institutions under stress test to check their stability if the economic situation worsens. Those under the stress test along with their P/E and market capitalization as on 24 April 2009 are listed below:

Name of Finanical Institution P/E Market Cap (Billion USD) Code
J.P. Morgan Chase & Co. 58.6 125.4 JPM
Wells Fargo & Co. 7.8 90.8 WFC
Goldman Sachs Group 27.1 61.0 GS
Bank of America Corp. 12.0 58.2 BAC
US Bancorp 16.5 33.4 USB
Bank of NY Mellon Corp. 27.4 30.9 BN
American Express Co. 13.3 29.3 AXP
MetLife 6.4 24.0 MET
Morgan Stanley - 23.8 MS
PNC Financial Services Group 18.0 19.2 PNC
Citigroup - 17.6 C
State Street Corp. 9.4 16.1 STT
BB&T Corp. 9.7 13.1 BBT
Capital One Financial Corp. - 7.5 COF
SunTrust Banks Inc. 18.3 5.7 STI
Regions Financial Corp. - 3.9 RF
Keycorp - 3.5 KEY
Fifth Third Bancorp - 2.1 FITB
GMAC LLC - -

The stress test which is aimed at assessing the capital adequacy of the major financial institutions under various scenarios comes under the SCAP (The Supervisory Capital Assessment Program). The banks that perform poorly under this stress test will be asked to increase their capital and will come under pressure from the investors. Fed has also released a 21 page document stating the methodology which it will use for the stress testing these institutions. The results of the test will start coming after May 4, 2009. One reason behind Fed stating the methodology 10 days in advance is to prevent any shock to the investors. The press release about the methodology was done about an hour after the closing of the US market for the weekend, thus giving analysts time to analyse and digest the information.

Resources:
The Fed's press release
The Fed's stress testing methodology

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