[Washington, 24th, Reuters]–The Federal Reserve Board (FRB) announced on the 24th the results of a stress test (health examination) conducted on major financial institutions. Since it turned out that the bank has sufficient capital, the restrictions on share buybacks and dividend payments introduced in response to the pandemic caused by the new coronavirus will be lifted on the 30th.
In this stress test, it is estimated that 23 major financial institutions will suffer a total loss of $ 474 billion under the toughest scenarios. Even under these harsh conditions, major financial institutions have been found to be able to maintain more than double the level required by the Fed. As a result, the Fed will lift the restrictions on share buybacks and dividend payments introduced in the early days of the pandemic.
The Fed urges financial institutions to wait until 4:30 pm EST on the 28th to announce dividend payments and capital plans. Analysts expect financial institutions such as JPMorgan Chase, Bank of America (BofA) and Goldman Sachs to be able to pay a total dividend of over $ 100 billion over the next four quarters.
In this stress test, we assume a severe situation where the unemployment rate will rise to 10.75%, the value of the stock market will be halved, and the economic growth rate will be -4% mainly due to the large loss of commercial real estate. .. Even under these circumstances, the overall capital adequacy ratio of financial institutions dropped to only 10.6%, and it was found that it could be maintained at more than double the prescribed minimum level.
HSBC’s US business had the lowest capital adequacy ratio of 7.3%, and Deutsche Bank’s US business had the highest ratio of 23.2%.
“The Fed has conducted three stress tests over the past year under different scenarios, all of which have led to an ongoing recovery in the banking system,” the Fed’s Vice-Chairman Qualls said in a statement. It was confirmed that they are in a state where they can strongly support. “
Following this announcement, bank stocks had little reaction in after-hours trading. “A year ago, the Fed witnessed growing uncertainty and called on banks to pay close attention,” said Christopher Marinac, research director at Johnny Montgomery Scott. It’s time to release surplus capital and bring banks back to normal. “
Kevin Frommer, president of the Financial Services Forum, an industry group, welcomed the results of the stress test and said, “A rational return of surplus capital will support the economy in a strong and widespread recovery.”