Commerce discloses results of financial stress test

Worst-case scenario: the economy tanks, unemployment spikes, stocks plunge, home prices crumble. How’s Commerce Bank doing?

That’s the hypothetical question posed by the Kansas City-based bank’s own assessment as required under regulatory changes that grew out of the 2008 financial crisis.

Commerce released the results Thursday of a financial stress test mandated by the Dodd-Frank Act.

Although the nation’s largest banks have had public stress tests, this is the first year that regional firms such as Commerce Bancshares Inc. have had to go public with their results. Specifically, the public test now applies to institutions with at least $10 billion in assets. Commerce Bancshares, the holding company for Commerce Bank, has $24 billion in assets.

UMB Financial Corp. with $16.7 billion in assets, expects to release its stress test results soon, a spokeswoman said. The assets of Topeka-based Capitol Federal Financial Inc. have stayed near or just below $10 billion, so it is not required to do the public stress test, a company officer said.

Commerce self-administered the test with federal oversight. It found that the bank’s profits, stock dividends and excess capital backing all would survive the “Severely Adverse Scenario” for the test.

For example, Commerce assumed a more than 50 percent drop in stock prices. It assumed a 20 percent fall in home prices and 30 percent decline in commercial real estate prices. The economy, under its hypothetical stressed economic environment, quickly dropped by a staggering 6.1 percent. The unemployment rate rose 4 percent.

Commerce would feel some pain, its results showed.

Profits would drop about 44 percent, but the bank would continue to be profitable, the test results indicated. Specifically, the tests indicated Commerce would earn $332 million over two years and three months, compared with the $522.8 million in earned during 2013 and 2014 combined.

Capital, which amounts to the financial backing behind the bank, would remain “well in excess of regulatory ‘well-capitalized’ levels,” Commerce said. Although Commerce’s capital would dip during the severe economic downturn, it would be higher by the end of the test period than it was before the crisis, according to its modeling.

This story was originally published June 26, 2015 at 2:30 AM with the headline "Commerce discloses results of financial stress test."