Regulators asked major U.S. banks to undergo stress tests last spring and early summer to see how they would hold up under financial stress, CNBC reports, citing sources familiar with the matter.
Months before stock markets embarked on the wild rides they've been on for several weeks now, officials at the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency quietly asked several banks — including Bank of America, JPMorgan Chase, Citigroup and Morgan Stanley — to stress-test their capital levels and see if they could raise emergency funds if needed, sources say.
Citigroup Chairman Richard Parsons has confirmed that his bank had participated in the latest stress test.
"If you are going to have a go-forward scenario where no one is too big to fail because you’ve got a plan for how to deal with that, you have to have a plan," he tells CNBC.
Calls have arisen for fresh stress tests similar to the ones conducted in 2009 in wake of the Lehman Brothers collapse and financial crisis.
Some say tests need to be even tougher than just a few years ago due to the global nature of today's many economic woes.
"Europe and the United States both need to conduct another round of stress tests on their banks, with a model similar to what was done in the United States in 2009, but with a more negative downside scenario — in particular, assessing the effects of a major sovereign debt problem in the euro zone," Simon Johnson, the former chief economist at the International Monetary Fund, writes in the New York Times.
"The point of such a scenario is to determine how much equity financing banks need to have if the world economy turns ugly. If the big banks raise more capital in advance, we are less likely to see economic downturn again become financial catastrophe."
© 2014 Moneynews. All rights reserved.