The Federal Reserve Board has cleared all 23 large US banks in the annual stress tests, saying that they could stand firm in the face of a severe recession.
This means that the restrictions imposed on buybacks and dividends to weather the Covid-19 storm can now be lifted.
Go deeper with GlobalData
In March this year, the regulator said that it would lift these restrictions after 30 June, provided that the banks clear the stress test.
At that time, it was said that a bank not reaching the target would have the restrictions reimposed until 30 September and those still unable to reach the required capital levels would be subject to tougher restrictions.
After testing their resilience under hypothetical scenarios, the Fed conceded that the 23 banks have “strong capital levels”.
The test estimated their losses, revenue, as well as capital levels during a hypothetical downturn, which saw the unemployment rate surging to 10.75% and the economy shrinking by 4%.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe hypothetical scenario would drive a collective loss of over $470bn. However, the capital ratios of the 23 banks would lower to 10.6% that is more than double their minimum requirements, noted the Fed.
In unveiling the results of the annual bank stress tests, the regulator said that these banks remained ‘well above’ their risk-based minimum capital requirements and hence can support the economy during financial meltdowns.
Federal Reserve vice chair for supervision Randal Quarles said: “Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery.”
The results have been welcomed by Financial Services Forum president and CEO Kevin Fromer.
Fromer said: “Given the strength of the nation’s largest banks and the rapid economic recovery, it is time to rely on the rigorous regulatory process that calculates the potential return of excess capital safely to investors across the country.
“This reasonable return of excess capital will support the economy as we build a strong and broad recovery.”
