Ally Financial Will Not Survive a Severe Recession in the US image

According to the Federal Reserve, Ally Financial will not be able to survive a severe recession in the US.

Ally Financial, which is still majority-owned by the government after the 2009 bailouts, would be the only one among the nation’s 18 largest banks that would not survive the Federal Reserve’s scenario. The government led an annual ‘stress test’ which showed that the 18 major US banks had fewer bad loans compared with 2012, due to a stronger economy.

The Fed’s data also shows that under the most severe scenario Ally Financial would have a much smaller capital buffer against losses compared with the other banks. In 2012 Ally was the worst-performing bank in the Fed’s stress tests, besides other three companies which failed the test and were not allowed to increase their dividends or even repurchase shares. Fed officials didn’t mention if they would allow Ally to buy back shares or issue dividends if the company wished to do so.

“While Ally appreciates the Fed’s role in ensuring that financial institutions have adequate capital during stressed situations, using flawed assumptions could have lasting adverse impacts on the economy, including ultimately causing banks to reduce certain key lending categories,” the bank said.