JPMorgan Chase & Co., which generated the most trading revenue among Wall Street firms last year, had the highest trading and counterparty losses of the biggest U.S. banks under the Federal Reserve’s stress scenario.
JPMorgan had an estimated $27.7 billion in projected losses from mark-to-market changes, credit valuation adjustments and counterparty default losses, according to the Fed results released today. Goldman Sachs Group Inc. (GS) had an estimated $27.1 billion of such losses in the testing.
The six largest U.S. banks had a projected $116 billion in trading and counterparty losses, larger than the 19 banks subjected to Fed’s stress tests had in any lending area. The Fed is requiring the nation’s largest lenders to show they have credible plans for maintaining capital and continuing lending in an economic downturn.
“The relative size of losses across firms depends not on nominal portfolio size, but rather on the specific risk characteristics of each BHC’s trading positions, inclusive of hedges,” the Fed said in the report. BHC stands for bank holding company.
The Fed’s global financial market shock tested losses from declines in positions held, counterparty defaults and charges related to the deterioration of creditworthiness of trading partners through the end of 2013.