U.S. Banks Hit New Stress-Test Hurdle as Fed, Firm Data at Odds

U.S. banks seeking regulatory approval to boost payouts to shareholders next year will face a new hurdle as the Federal Reserve begins making its own projections for lenders’ balance sheets in annual stress tests.

The Fed, using its own model for how banks will fare in an economic slump, may project lower capital ratios for the nation’s largest lenders than what the firms calculated, according to a letter issued yesterday by the central bank. That’s because Fed estimates will rely on historical data showing industry assets rose in the last three recessions. In past tests, the examiners used bank estimates that typically predicted a drop in asset balances, according to the letter.