U.S. Bank Says It Could Weather Another Severe Recession

In a company-run analysis, which was required by regulators, U.S. Bancorp projected that it could survive a major recession; Wells Fargo said it, too, would be prepared for such a downturn.

If the country saw an economic downturn in which unemployment climbed to 11.8 percent, gross domestic product dropped as much as 6.7 percent, equity prices plummeted more than 50 percent, and home prices fell as much as 22 percent, U.S. Bancorp would be prepared.

That’s according to new data from the Minneapolis-based bank-holding company, parent company of U.S. Bank, that was released in response to new federal regulations. The so-called “stress tests” are mandated by the Dodd-Frank Act, which requires large banks to analyze whether they could weather another financial crisis.

Eighteen large banks, which released initial test results earlier this year, were required to perform mid-year tests, the results of which must be disclosed by September 30.

U.S. Bancorp’s latest analysis projected results through the second quarter of 2015. Under the “severely adverse scenario” that involves plummeting stock and housing prices, rising joblessness, and other economic headwinds, U.S. Bank would have a projected Tier 1 common ratio—a key measure of a bank’s capital strength—of 9 percent by the second quarter of 2015. The Fed’s minimum threshold for that measure of a bank’s financial health is 5 percent. U.S. Bancorp would also exceed regulatory requirements for other ratios, according to the stress-test results.

In other words, the data suggests that even amid catastrophic economic events, U.S. Bank would be expected to maintain capital levels above regulatory minimums. In fact, the bank also estimated that, despite incurring $12.4 billion in loan losses during the period outlined in the scenario, it would generate an estimated pre-tax profit of $1.8 billion.

San Francisco-based Wells Fargo & Company—which has a major presence in Minnesota and is one of the state’s largest employers—was among other large banks that released their stress-test results this week. The bank said that all four of its projected capital ratios would remain above regulatory minimums during the hypothetical scenario.

U.S. Bancorp and Wells Fargo were among the banks that passed a different stress test last year. Unlike that test, which included an analysis by the Federal Reserve, the latest results do not include a response from regulators.

U.S. Bancorp is Minnesota’s largest bank-holding company based on its assets, which totaled $353 billion as of June 30.