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US stress tests: Warning signal to JP Morgan and Goldman Sachs

The Federal Reserve granted capital plans approval for 14 flagship American financial institutions in accordance with the the Comprehensive Capital Analysis and Review (CCAR) aka Stress Tests. Two other institutions, Goldman Sachs and JPMorgan, received conditional approval, while the Federal Reserve opposed plans on two enterprises.

As read in the statement: "The Fed did not object to the capital plans for The Goldman Sachs Group, Inc., and JP Morgan Chase & Co., but required the two institutions to submit new capital plans by the end of the third quarter to address weaknesses in their capital planning processes. The Federal Reserve objected to the capital plans of Ally Financial, Inc., and BB&T Corporation."

Both JP Morgan and Goldman Sachs must resubmit capital plans before end of March, with the latter showing a tier 1 common capital barely above 5%.

According to Adam Button, editor at Forexlive, "conditional’ approval is the polite way of saying ‘we want to fail you but we’re scared of how markets would react’. I expect this will deal a blow to stocks tomorrow but I make no promises — stocks have shaken off worse news and rallied in the past few months."

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