AGI – Big US banks will no longer have to face the restrictions of the Covid era on buybacks and dividends. This was announced by the Federal Reserve after the results of its latest stress test. The US central bank said tests found 23 of the largest banks would suffer combined losses of $ 474 billion in a hypothetical severe recession, but that would still leave them with more than double the capital required by Fed rules.
Consequently, thehe US central bank will raise limits on share buybacks and dividends that he had put in place at the beginning of the coronavirus pandemic. The results will be greeted with a sigh of relief on Wall Street: analysts expect banks like JPMorgan Chase, Bank of America and Goldman Sachs to be able to pay investors more than $ 100 billion over the next four quarters.
The severity of the losses will be a factor in defining the new capital requirements for each company and will set limits for future dividends and buybacks. The Fed explained that banks will have to wait until markets close on Monday to announce dividends. Even the institutions that suffered heavy losses in the test, which envisaged an economic contraction of 4%, maintained satisfactory capital ratios, more than double the minimum imposed by the rules.
Today’s findings support Fed Vice President Randal Quarles’ stance that banks did well during the pandemic and the full reopening of the economy will be able to operate from a position of strength. “Over the past year, the Federal Reserve has run three stress tests with different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery,” Quarles said.
The Fed began normalizing banks’ financial activity in December, allowing companies to start buying back shares and paying dividends, albeit on a smaller scale.