Worries associated with a potential China-inspired economic contagion took a toll over some major U. S. banking institutions.
In the recent years, supervisory bodies and banking institutions have carried out a herculean tasks series to set U. S. banks on a firm ground. Furthermore, regulators have carried out years of major-bank stress tests. Results published this March, for instance, made tests over 31 big banks that collectively keep 80% of U. S. bank property against adverse and seriously adverse economic conditions.
Among the test statements were scenarios where stock markets can fall with 25%-60%.
In accordance with the Fed, no major bank in America would see their investment levels drop under regulatory minimums in any case. It is because the big banks are much less exposed to trading deficits, financed with much more capital and less dependent on low cost, short-term financing. They’ve all experienced their net interest margins, the huge distinction between the amount they pay for funding and the amount they charge on loans, squeezed because of the ultra low interest-rate situation.
It is now more probably banks will not see better interest margins any time soon. Citigroup had approximately $21.1 billion in China exposure by June 30. Exposures were of the same level or even less at Wells Fargo, J. P. Morgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley.
Obviously, U. S. banks show a stubborn competence to surprise their investors with bad news. However, economic contagion remains a threat, specifically if it triggers a melt down at a big investor who then blows it all back on a bank.