The Fed has further relaxed restrictions on dividends and repurchase restrictions on the largest U.S. banks because it released an analysis showing that these banks may suffer losses of nearly $500 billion, but they can still easily meet capital requirements.
Twenty-three banks, including JPMorgan Chase and Goldman Sachs, underwent a “stress test” by the Federal Reserve, which simulated the financial losses caused by a series of financial crises. Apocalyptic sceneThese include the collapse of the U.S. stock market, the sharp decline in economic output, and the serious plight of commercial real estate.
The results announced on Thursday will be Billions of dollars in stock buybacks and dividendsThis is what bank investors have been eagerly looking forward to.
“In the past year, the Fed has conducted three stress tests on several different hypothetical recessions, all of which confirm the banking system’s ability to support a sustained recovery,” Randall Quarles, Fed’s Vice Chairman of Supervision Say.
The annual stress test shows that the country’s largest bank can withstand US$474 billion in loans and other position losses, and still has more than twice the high-quality common stock Tier 1 capital (CET1) required for its risk-weighted assets.
Among the banks headquartered in the United States, investment banking groups Goldman Sachs and Morgan Stanley suffered the most in their capital ratios in the stress test, falling by 5.9 and 4.7 percentage points, respectively.
In contrast, the 23 banks tested dropped an average of 2.4 percentage points, including the US subsidiaries of foreign banks with important operations in the US.
Compared with previous years, consumer debt accounted for a small percentage of total losses, as most retail customers have paid off credit cards and other loans during the Covid-19 pandemic in the past year. But the increase in expected losses on commercial and industrial loans offset this decline. Nearly $160 billion in losses came from commercial real estate and corporate loans.
Federal Reserve Dividend cap And when the pandemic broke out last year, stock repurchases were prohibited. The central bank relaxed some of these restrictions in early 2022, but still limits the amount of funds that banks can return to shareholders to no more than the cumulative profits of the previous four quarters.
The Fed has previously stated that it will Pull back These restrictions further await the results of the annual stress test released on Thursday, which are required by the Dodd-Frank financial regulations introduced after the crisis.
Large banks are supported by government stimulus measures and strong income from transactions and transactions, and their capital levels have also inflated in part due to restrictions on shareholder dividends.
According to senior Fed officials, the Fed expects that banks will wait until Monday to analyze the results of the stress test before announcing any new shareholder dividend plans.
Barclays analysts estimate that among the 20 related institutions covered by it, the median bank will return more than 100% of its earnings to shareholders next year, and return capital to investors close to $200 billion.
According to the test, the Fed will also stipulate CET1 capital exceeding the regulatory minimum for each bank, which they need to maintain through the so-called pressure capital buffer. The CET1 ratio measured by risk-weighted assets is an important benchmark for financial stability.
The usual goal of banks is to keep capital above the regulatory minimum.