U.S. banks are preparing to get a purchase bond after passing stress tests
The U.S. Federal Reserve released an analysis showing that America’s largest banks were cutting dividends and buying restrictions, showing that lenders were able to meet nearly $ 500 billion in losses and still meet capital requirements.
Twenty-three banks, including JPMorgan Chase and Goldman Sachs, conducted “stress tests” on the Fed, citing the financial damage of some series as a model. last day scenarios. These included the crash of the U.S. stock market, a sharp decline in economic output, and a significant stress on commercial real estate.
The results released on Thursday will pave the way billions of dollars in stock purchases and dividends, which bank investors are eagerly awaiting.
“Over the past year, the Federal Reserve has undergone three stress tests with various hypothetical recessions and all have confirmed that it is in a position to help restore the banking system continuously,” said Randal Quarles, vice president of Fed supervision.
Annual stress tests can cause the country’s largest lenders to incur losses of $ 474 billion in loans and other positions, and are still generated by more than a first tier of high-quality working capital or more than double the CET1 capital of risk-weighted assets.
Among those based in the U.S., investment banking groups Goldman Sachs and Morgan Stanley suffered the highest success rates in capital testing, with declines of 5.9 percent and 4.7 percentage points, respectively.
Compared to the 2.4 percentage point drop in the average of the 23 banks that conducted the tests, there were U.S. subsidiaries of foreign banks that had significant U.S. operations.
Consumer debt has accounted for a smaller share of overall losses than in previous years since most retail customers spent their last year paying off credit cards and other loans in the Covid-19 pandemic. But the growth in expected losses in commercial and industrial lending has more than offset this decline. The losses came from nearly $ 160 billion in commercial real estate and corporate loans.
Fed limited dividends and banned the purchase of shares when the pandemic broke out last year. The central bank released some of these restrictions in early 2021, however, they only limited the amount of money that banks could return to shareholders to accumulated earnings from the previous four quarters.
The Fed said so before throw back these limits are also pending the results of the annual stress tests published on Thursday, which are a condition of the Dodd-Frank financial regulations introduced after the crisis.
Large banks have consolidated government revenues and large revenues generated by trade and negotiations, and the level of capital growth has also increased to some extent as a result of reductions in shareholder payments.
The Fed expects banks to wait until Monday to review the results of the stress tests before announcing a plan to make new payments to shareholders, according to Fed officials.
Barclays analysts estimate that the median bank of 20 major institutions will return more than 100 percent of its profits to shareholders next year, and the capital will be returned to investors with $ 200 billion.
From the tests, the Fed will prescribe to each bank how much CET1 regulates capital to maintain more than the minimum amount through a so-called stress capital buffer. The CET1 ratio measured with risk-weighted assets is a crucial benchmark for financial stability.
Banks typically aim to keep capital above regulatory minimums.