Wells Fargo Releases 2019 Stress Test Results Under Dodd-Frank Act
JUN 24, 2019 - 6:35 am
Wells Fargo & Company released the results of its latest company-run stress test conducted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The company performed the test by projecting balance sheet changes, losses and related provision, revenue, expense, riskweighted assets, and capital ratios under a hypothetical scenario that incorporates a set of assumed economic and financial conditions prescribed by regulators. Wells Fargo used models and methodologies it developed or selected, except where the assumptions, practices or methodologies were specifically prescribed by rules or instructions published by the Federal Reserve.
The results of the 2019 annual stress test suggest that the company’s performance would decline under the assumptions of the ccenario in response to increased provision expenses, reduced business volumes, lower net interest income, and higher market-related losses. Wells Fargo projected a cumulative total net loss before tax of $17 billion, reflecting projected losses of $44.4 billion from provision for loan losses, trading and counterparty credit losses, and losses on debt securities. These losses are partially offset by projected cumulative pre-provision net revenue (PPNR) of $27.4 billion, which represents projected net interest income plus noninterest income less noninterest expense.
Despite projected declines in revenue, significant losses, and the mandated assumption that capital conservation actions would not be taken, the projected minimum Common Equity Tier 1 ratio during the nine-quarter test horizon was 10.4%, well above the 4.5% stress test regulatory minimum.
The Federal Reserve Board published the results of its supervisory-run DFA stress tests for the nation’s largest banks, including Wells Fargo, using the Dodd-Frank Capital Actions distribution requirements. Wells Fargo’s estimates may differ from the Federal Reserve Board’s estimates.
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