Fed to conduct fourth round of bank stress tests

WASHINGTON (AP) ― The second-ranking member of the Federal Reserve said the central bank will conduct a fourth round of stress tests in the coming weeks to determine if U.S. banks can withstand a recession.

Vice chairman Janet Yellen said Friday that the tests are necessary to ensure a stable U.S. economy. She made the comments during a speech at the Federal Reserve Bank of Chicago.

In her speech, Yellen also noted the increased downside risks that Europe’s debt crisis poses to financial markets and the global economy.

“We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system,” she said.

The Fed oversees Wall Street’s biggest banks, including Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo. The Fed has performed periodic stress tests on the 19 banks it watches since 2009.

The central bank has said the stress tests are a key part in its ongoing efforts to make sure that banks ― and the entire financial system ― are stable. Banks that don’t pass the stress tests are asked to take steps to raise new capital in case of big losses.

Previous tests were done in 2009, late 2010 and early 2011.