JPMorgan Chase, one of the largest banks in the United States, has disputed the Federal Reserve’s assessment of its recent stress test results. The bank claims that the Fed overestimated a key measure of income called “other comprehensive income” (OCI), which includes revenues, expenses, and losses that are excluded from net income. JPMorgan argues that the Fed’s projection for OCI appears to be too large.
According to the Fed’s projections, JPMorgan was assigned $13 billion in OCI, the highest among all 31 lenders in this year’s stress test. Additionally, the regulator estimated that the bank would face around $107 billion in loan, investment, and trading losses in a severe hypothetical recession scenario. However, JPMorgan believes that if the Fed’s analysis of OCI is corrected, the resulting stress losses would be slightly higher than what the regulator disclosed.
This discrepancy in the stress test results means that JPMorgan may need more time to finalize its share repurchase plan. Banks were scheduled to disclose these plans on Friday after the market closes. The bank’s response to the Fed’s findings came in the form of a press release issued just before midnight ET, highlighting the urgency and seriousness of the matter.
This is not the first time that banks have raised concerns about aspects of the annual stress test. Last year, both Bank of America and Citigroup made similar disclosures, stating that their own estimates of future income differed from the Fed’s results. Banks have criticized certain aspects of the exam for being opaque and difficult to understand.
The Federal Reserve announced on Wednesday that all 31 banks in this year’s stress test had passed, demonstrating their ability to withstand a severe hypothetical recession while maintaining sufficient capital levels and the ability to lend to consumers and corporations. However, JPMorgan’s challenge to the Fed’s assessment emphasizes the need for greater transparency and understanding of how these stress test results are produced.
In conclusion, JPMorgan’s dispute with the Federal Reserve over the stress test results raises questions about the accuracy and transparency of the annual exam. The bank argues that the Fed overestimated its “other comprehensive income” measure, potentially leading to higher stress losses than initially disclosed. This discrepancy may delay the bank’s share repurchase plan and highlights the concerns raised by banks regarding the opacity of the stress test process. Moving forward, it is crucial for regulators to address these concerns and provide more clarity to ensure the credibility and effectiveness of stress tests in evaluating banks’ resilience.
