Article Authors:
Reuters
Pete Schroeder and Michelle Price
Washington — The largest US bank on Thursday easily cleared the Federal Reserve's annual health checkup. The US economy could be in recession in the coming months.
The results of the Federal Reserve's annual "stress test" exercise show that banks have enough capital to survive a severe recession and are the way to buy back shares and issue dividends. Showed to open.
Fed-supervised 34 lenders with over $ 100 billion in assets will suffer a total loss of $ 612 billion in a severe virtual recession, the central bank said. rice field.
However, they are still left with about twice the amount of capital required under that rule.
As a result, banks such as JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs can use their surplus capital to pay dividends and buy backs to shareholders. .. These plans can be announced after the closing of the transaction on Monday.
"We believe this is as positive for large banks as we can expect from an annual stress test," Cowen Washington Research Group analyst Jaret Seiberg said in a research note. .. "Banks weren't just doing well. Tests have shown that they can survive a serious recession by plunging commercial real estate and equity values and skyrocketing unemployment."
The country's largest banking group welcomed the results as a sign of a strong financial position in the sector. But Sherrod Brown, the Democratic chairman of the US Senate Banking Commission, criticized the exercise as not rigorous enough.
Under the annual "stress test" exercises established after the 2007-2009 financial crisis, the Fed shows how banks' balance sheets deal with a virtual and serious recession. Evaluate what to do. The results show how many capital banks need to be healthy and how much they can return to shareholders.
The 2022 scenario was devised before Russia invaded Ukraine and is the current outlook for hyperinflation, but investors and policy makers were later economists in the United States. You can be confident that your country's banks are well prepared to warn you of a possible recession. This year or next year.
In this year's scenario, 34 banks suffered significant losses. In this scenario, the economic contract was 3.5% due to the low asset value of commercial real estate and the sharp rise in the unemployment rate. Ten%. But nonetheless, the Fed said banks' total capital ratio is still about twice the minimum required by regulatory agencies.
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In 2020, the Fed abolished the "pass / fail" test model and introduced a more subtle bank-specific capital structure.
This test assesses whether a bank is above the minimum capital adequacy ratio of 4.5%. This is an indicator for banks to absorb potential losses. High-performing banks usually outperform it. The average capital adequacy ratio of the
34 banks was 9.7%, the Fed said. This is compared to last year's 10.6%, where the Fed tested 23 lenders for a slightly simpler scenario.
According to Reuters results analysis, the average ratio of eight domestic "globally systemically important banks" or GSIBs under test was 9.64%.
Bank of America stocks with the lowest GSIB ratio of 7.6% have a Citigroup ratio of 8.6. It fell in after-hours trading, just as it was in%. State Street shares, which accounted for 13.2%, surged slightly.
Overall, the Huntington Bancshares Incorporated ratio is the lowest at 6.8% and Deutsche Bank's US operations are the highest at 22.8%.
This test also sets a "stress capital buffer" for each bank. This is an additional capital cushion in addition to the regulatory minimum, the size of which is determined by the virtual loss of each bank in the test. The Fed will announce these buffers in the coming months.
Credit Suisse banking analysts predicted this week that the average stress capital buffer of major banks would rise from 3.2% in 2021 to 3.3%, ranging from 2.5% to 6.3%. According to Credit Suisse, the amount of capital lenders redistributed to shareholders in 2022 will decrease by about 10% year-on-year.
See the stress test description here: (Report by Pete Schroeder and Michelle Price, Additional Report by Cinade Caleu and Elizabeth Diltz Marshall in New York, Edited by Deepa Babington)
