Bloomberg News reports that the biggest banks on Wall Street are ready to return tens of billions of dollars to the lenders after passing the annual stress test, which decides whether they are capable enough to tide over the market turbulence. The Federal Reserve conducts the stress test.
More on the Stress Test
On examining the banks, it was found that they showed that these banks had adequate capital to meet obstacles like plunging prices in real estate, increasing unemployment, and plunging stocks, as per a statement released by the Fed on Thursday. Major companies like Goldman Sachs Group Inc, Morgan Stanley, and JPMorgan Chase & Co faced a made-up market shock that was able to test how resilient the trading operations were.
The test terms were announced before the surge of US inflation in February when it had not surged to a 40-year high. However, there no longer seems to be a far-fetched scenario amidst a mounting concern related to the economic slowdown. The qualifying marks give the banking giants effectively a green signal to repay the billions of dollars to the investors in share buybacks and dividends.
As per Fed’s statement, banks continue to possess intense capital levels, letting them continue lending to businesses and households during a severe recession. The Fed also said that in the 30 lenders it examined, most of them could stay above the minimum capital requirement when there was a hypothetical economic slowdown, which would otherwise have caused a projected total loss of $612 billion.
Bloomberg News reports that the lenders use these tests to ascertain how much capital they can afford to make payments to the investors without having to compromise with the amount that is mandatory to be held as a cushion. If any lender is found breaching the stress capital buffer at any point of time following the exams, sanctions can be applied by the Fed, which can also include restrictions on the distribution of capital and payments for the bonus.
After obtaining the results, the banks can now announce their payout plans starting Monday. Barclays Plc analysts’ estimates indicate that JPMorgan is all set to lead with $18.9 billion in combined dividends and share buybacks, followed by Bank of America Corp. and Wells Fargo & Co. with $15.5 billion and $15.3 billion, respectively. In all, giants of US banking are expected to return $80 billion to the stakeholders in the current year, as per data that has been compiled by Bloomberg based on the projections.
The stress test of the Fed 2022 includes severe recession globally that is accompanied by heightened periods of stress in corporate debt markets and commercial real estate, according to the website of the Federal Reserve.
