Despite being the only major U.S. financial institution that failed a Federal Reserve’s hypothetical severely adverse economic stress test, Zions Bank says it’s “still in great shape and performing well” with combined total assets exceeding $55 billion.

Zions Bancorp, parent company of Zions Bank which has taken over payroll and other accounts for ASG, didn’t meet minimum standards for financial capital levels set by the Federal Reserve in the event of a major economic meltdown, based on the stress test guidelines in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Federal Reserve announced the results of  bank stress tests last Thursday in an effort to determine whether the largest banking institutions in the U.S. were collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in a catastrophic economic downturn than they were five years ago, The Associated Press reports.

According to the Federal Reserve, the nation’s top 30 banks — including Zions and Bank of America — were tested, and the banks were by name. Bank of Hawai’i and the ANZ Guam, parent company of ANZ Amerika Samoa Bank were not included.

Responding to Samoa News inquiries, ASG Treasurer Dr. Falema’o ‘Phil’ M. Pili says that in his personal opinion, the outcome of the stress test — “should not be a concern at all. I’m confident that the Zions’ executives will have it resolved very shortly.”

Pili also provided to Samoa News an email correspondence between himself and Zions executive John Richards regarding this issue, due to Samoa News’ interest. (Samoa News had also asked the Treasurer to share any response to his office from Zions)

Richards explained that Zions is required to go through a stress test with the Federal Reserve. “The test parameters are based on a severe adverse economic environment and found Zions capital ratios below certain minimal thresholds,” he said. “Zions plans to take immediate action to mitigate the shortfall based on the results.”

In a statement last Friday, Zions said that based upon an initial review of the Federal Reserve's report, the bank’s stress test results were worse than Zions had projected primarily because of significantly higher commercial real estate losses; significantly greater risk-weighted assets, and lower pre-tax, pre-provision net revenue.

Zions also notes that its original submission to the Federal Reserve occurred prior to the sale of certain collateralized debt obligation securities (CDOs) in January and February 2014, which sales also resulted in a substantial reduction in risk, the statement says.

The bank says it will resubmit its capital plan to the Federal Reserve and anticipates that the resubmission will contain additional actions that will further reduce risk and/or increase its common equity capital sufficient to cause Zions' capital ratios to meet or exceed the minimum capital ratios under the Federal Reserve's hypothetical severely adverse economic stress scenario.

“Zions current credit loss rates are significantly better than the industry level, and current capital ratios are in line with the industry average, and Zions liquidity levels are among the best in the industry,” Richards said in correspondence with the ASG Treasurer.

As to whether customers’ money with Zions Bank is safe, the bank said in a Q&A document, “Yes, this stress test was hypothetical only, based upon sharp and rapid declines in commercial and residential real estate values, a sustained and sharp decline in economic activity, and a sharp spike in unemployment.”

For example, the severe adverse scenario included commercial property prices being forecast to decline 35% and unemployment increased to 12% from the current level, said Zions.

How confident is Zions that it can raise capital or mitigate risk? The bank explained that during the actual financial crisis of 2008-2009, “Zions had experienced consistent success at taking measures to strengthen the company’s capital and reduce risk, and therefore sees no concerns with taking such mitigating action in a benign environment today.”

Utah publication Deseret News quotes Bob Allen, professor of accounting in the David Eccles School of Business at the University of Utah, saying the results should not be taken as an indictment of the institution.

He says Zions isn’t the first bank to ever fail to pass a stress test. “There are other well-respected banks that have fallen below (the minimum) level in other stress tests,” he said but acknowledged the importance of such exams in helping regulators and bank managers monitor the health of their institutions.

He also said Zions is a “solid bank” and customers shouldn’t feel concerned about the safety of their accounts, despite the stress test results.

Zions Bancorp said in a statement that it is one of the nation's premier financial services companies, consisting of a collection of great banks in select western U.S. markets with combined total assets exceeding $55 billion.