Yesterday, I broke down the recent stress test rankings of the 19 "too-big-to-fail" banks. That ranking showed how they fared based on their minimum Tier 1 common capital ratio in a stress test that stretched to the end of 2013.

Today, rather than the absolute capital ratios, let's look at how much their capital was affected by the stress test scenario. If you believe the numbers, this gives us some indication of how sensitive a bank's capital structure is to a 2007-2009-esque financial crisis (featuring falling asset prices and low interest rates) and also how conservative it is in its reporting.

The last column of the following table compares the minimum Tier 1 common capital ratio at the end of Q3 2011 with the minimum value during the stress test. The higher the number, the better.


Q3 2011 Ratio

Minimum "Stressed" Ratio*

Stressed vs. Current Actuals

Bank of New York Mellon 12.5% 13.3% 106.4%
American Express 12.3% 12.4% 100.8%
State Street 16% 15.1% 94.4%
US Bancorp (NYSE: USB) 8.5% 7.7% 90.6%
Fifth Third (Nasdaq: FITB) 9.3% 7.7% 82.8%
BB&T 9.8% 7.3% 74.5%
Capital One Financial 10% 7.2% 72%
Wells Fargo 9.3% 6.6% 71%
Regions Financial 8.2% 5.7% 69.5%
Bank of America (NYSE: BAC) 8.7% 5.7% 65.5%
JPMorgan Chase 9.9% 6.3% 63.6%
PNC Financial Services 10.5% 6.6% 62.9%
SunTrust 9.3% 5.5% 59.1%
MetLife 9.3% 5.4% 58.1%
KeyCorp 11.3% 6.3% 55.8%
Citigroup (NYSE: C) 11.7% 5.9% 50.4%
Goldman Sachs (NYSE: GS) 12.1% 5.8% 47.9%
Morgan Stanley 12% 5.4% 45%
Ally Financial 8% 2.5% 31.3%
Overall 10.1% 6.8% 67.3%

Source: Federal Reserve.
*Under the stress test scenario assuming no capital actions.

We see that Bank of New York Mellon and American Express increased their capital ratios under the stress scenario, indicating that even in a collapse, they could continue to add equity to their balance sheets.

The actual banks in the group (i.e. those that are primarily retail or investment banks) that held up the best were retail bankers US Bancorp and Fifth Third Bank. In both cases, their current capital ratios weren't particularly impressive versus their peers until they were stressed. On the flip side, KeyCorp, Citigroup, Goldman Sachs, and Morgan Stanley saw their double-digital capital ratios halved by the stress tests, resulting in stressed ratios lower than those of US Bank and Fifth Third.

What may surprise you is that Bank of America, which gets so much bad press, was in the middle of the pack on this metric. That said, its absolute capital ratios before and after the stress scenario were both below average.

Use these results as another data point in your arsenal. It helps lend credence to why the market is willing to pay almost two times book value for US Bancorp stock while it's paying barely over half for Citi's.

And if the "too-big-to-fail" banks are too opaque for you but you're still interested in banking, check out our banking free report. It highlights an excellently run smaller bank that has fewer moving parts than many of the big boys. Grab your copy.