Fed to stress test six banks

The Federal Reserve plans to stress test six large US banks against a hypothetical market shock, including a deterioration of the European debt crisis, as part of an annual review of bank health.

The Fed said it will publish next year the results of the tests for six banks that have large trading operations: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

Nancy Bush, a bank analyst and contributing editor at SNL Financial, said: “They are clearly worried about the issue of Europe. In a time of risk aversion and concern, you need transparency.”

The Fed said its global market shock test for those banks will be generally based on price and rate movements that occurred in the second half of 2008, and also on “potential sharp market price movements in European sovereign and financial sectors”.