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The biggest American banks have all succeeded in the annual tests of the federal reserve to find out if they can resist a future economic crisis and on the market, which has prompted analysts to predict a sharp increase in dividends and buyouts.
The Fed said on Friday that in its “seriously unfavorable” scenario, in which unemployment increases to 10%, the 22 banks, including Jpmorgan Chase, Goldman Sachs and Bank of America, would lose more than $ 550 billion.
However, they would suffer a much smaller capital stroke than in recent years and would remain in the required regulatory standards.
The theoretical recession used by the Fed to test the resilience of banks was less serious than the previous year. Although the scenario was designed before President Donald Trump’s return, he arrives at a time when his administration pushes to soften financial regulations.
“Large banks remain well capitalized and resistant to a range of serious results,” said Michelle Bowman, Fed supervision vice-president.
The results of the Fed stress tests will be used to calculate the minimum capital level that banks need compared to their assets adjusted to risk, providing a critical stamp to absorb losses.
Jason Goldberg, analyst at Barclays, plans on the basis of this year’s results that Goldman Sachs is the largest winner among the main American lenders, because his minimum level of capital would drop from 13.7% to 10.7%. Wells Fargo, M&T Bank and Morgan Stanley would also have their capital needs reduced by 1 percentage point, he predicted.
He added that this was likely to increase the amount of excess capital that most banks seek to return to shareholders via dividends and share buybacks. “We expect the repurchase of shares (in dollars) to increase 12% to [the] Median Bank compared to the examination of the previous year, most stable to higher banks, “he said.
Banks are optimistic that the tests will become even more accommodating after the Fed responded to a legal challenge to the main group of banking hall with the promise to revise the exercise. The central bank said earlier this year that it planned to make the exercise more transparent and to make the average test results in the past two years to reduce volatility.
Banks must wait until Tuesday to provide an update on what they expect to make their new capital requirement. They frequently put plans for dividends and share redemptions after the Fed stress tests.
The Fed said that this year’s stress tests would push the level one capital ratio of capital level, their main cushion against losses, down 1.8 percentage points – a drop smaller than in recent years and well below the decrease of 2.8 percent in the exercise last year.
But the Fed said it expected to calculate the capital’s capital requirements on the basis of its two -year average proposal, provided that this was finalized in the coming weeks. This will increase the capital stroke to 2.3%. Bowman said that the change was preferable “to respond to the excessive volatility of the results of constraint tests and corresponding capital requirements”.
The lender with the greatest drop in his capital due to theoretical stress was the American Deutsche Bank operation, which experienced a hypothetical drop of more than 12 percentage points, based on the due results of the last two tests. The next falls were the UBS UBS and Canada US subsidiaries in Switzerland. But they all remained more than double the minimum level of 4.5% thanks to the examination.
In the “seriously unfavorable” scenario of this year, American GDP decreased by 7.8% in one year, unemployment increased by 5.9 percentage points to 10% and inflation slowed down for 1.3%. Housing prices dropped by 33% and commercial properties prices dropped by 30%.
Although it is one of the most extreme recessions in history, it is softer than that written by the Fed last year. The theoretical market crash – with the equity price of 50% and high -efficiency obligations that were sold sharply – was also less serious than in last year’s exercise.
The Fed said that banks have benefited from their higher profitability. He added that he had included lower hypothetical losses of the Private Equity after “adjust the way in which these exhibitions are measured to better align with the characteristics of these exhibitions”.
Under Trump’s pressure to relieve the regulatory burden to support growth and investment, the Fed has announced its intention to rework many of its rules for banks.
This week, the Fed and the other two main banking dogs have announced its intention to reduce the improved additional lever ratio, which establishes the capital that the largest banks must have against their total assets.
