Federal Reserve says big banks underestimate risks

WASHINGTON The Federal Reserve says America's largest banks need to do a better job of determining how much capital they need to cushion against a future crisis.

The Fed says a study shows that banks have made progress in preparing for stresses like those brought by the 2008 financial crisis. But it says banks must go further by accounting for specific risks that relate to their business activities.

"A key lesson from the recent financial crisis is that many financial companies simply failed to adequately identify the potential exposures and risks stemming from their firm-wide activities....," the central bank said in the study. "But more importantly, many companies failed to consider the full scale and scope of exposures, and to analyze how the size and risk characteristics of their exposures and business activities might evolve as economic and market conditions changed."

The Fed has been conducting annual stress tests on the biggest banks since 2009. The next round will include the 18 largest banks and an additional 12 firms that will participate for the first time next year.

The report comes as President Barack Obama is meeting with banking regulators for a status report as the five-year anniversary of the financial crisis approaches.

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