The U.S. units of major European banks including Santander, Deutsche Bank, Barclays and Credit Suisse passed the Federal Reserve’s annual “stress tests” on Thursday, showing they have enough capital to deal with an economic crisis.

For the seven European banking affiliates the Federal Reserve oversees with more than $100 billion in assets, the median capital ratio—a measure of a bank’s buffer to withstand potential losses—remained well above the regulatory minimum of 4 ,5%.

It was also higher than the average ratio of the 34 banks examined, according to a Reuters analysis of the results. The average capital ratio of the seven European financial institutions stood at 15.2%, compared to 9.7% of the 34 banks.

Deutsche Bank’s operations in the US had the highest ratio of all banks, at 22.8%, while Credit Suisse was the third highest in the group, with a ratio of 20.1%. HSBC was the furthest behind in the group of foreign banks, with a ratio of 7.7%.

As part of its annual stress testing exercise, established after the 2007-2009 financial crisis, the Federal Reserve assesses how bank balance sheets would perform in a hypothetical severe economic downturn. The results dictate how much capital they need to be healthy and how much they can return to shareholders.

In the worst of the scenarios conceived in this year’s tests, the economy contracted 3.5%, partly due to the collapse of the value of commercial real estate assets, and the unemployment rate rose to 10%. The other four European subsidiaries examined were UBS America Holdings, Santander Holdings USA and BNP Paribas USA.

Santander said in a statement that the company’s minimum capital ratios in the severely adverse scenario were in the top quartile among participating banks. Starting from a level of capitalization among the highest, 18.8%, Santander would only fall to a minimum of 18.7% and would come out of the recession with 18.9%, according to the results published by the Federal Reserve.

Although the scenarios were drawn up before the Russian invasion of Ukraine and a sharp rise in inflation, the evidence should reassure policymakers that major European banks are resilient enough to withstand a potential recession. this year or early 2023. The Bank of England said this month that it was convinced financial institutions were no longer “too big to fail”, although it asked for more clarity on the amount of liquidity three big banks, including HSBC, would need if they were to be liquidated. in a future crisis.

The European Banking Authority is due to conduct its next EU-wide stress test in 2023, but investors are watching closely for evidence of falling asset quality for European banks as interest rates start to rise. rise from its historic lows.

In 2020, the Fed changed how the test works, scrapping its “pass-fail” model and introducing a more nuanced capital regime.

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