Latest news with #stressTests
The Independent
17 hours ago
- Business
- The Independent
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
All the major banks passed the Federal Reserve 's annual 'stress tests" of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics compared to what they tested in 2024. All of these less harmful, but simulated, drops mean there would be less damage to these banks' balance sheets and less risk of these banks of potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown 'unintended volatility' in the results and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose to not test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports or methodology about testing or measuring private credit or private debt in this year's test. The Fed's 'stress tests' were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the once that happened nearly 20 years ago. The tests are effectively an academic exercise, where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the U.S. and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
Yahoo
17 hours ago
- Business
- Yahoo
The biggest US banks pass another Fed stress test, boosting case for looser capital rules
The Federal Reserve's latest stress tests show that the largest U.S. banks could withstand a severe recession with plenty of capital on hand to absorb hundreds of billions in losses. This year the Fed's regulatory exam applied to 22 banks with assets of more than $100 billion, a group that included Wall Street giants such as JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS). 'Large banks remain well capitalized and resilient to a range of severe outcomes,' the Fed's vice chair for supervision Michelle Bowman said. All 22 lenders were able to show that their capital levels would stay above a key threshold in a scenario where GDP contracts by nearly 8%, unemployment soars to 10%, home prices plunge 33%, and the stock market drops by 50%. Their common equity tier 1 capital ratio as a group was 11.6%, well above the required minimum of 4.6%. The banks' losses in this simulation also collectively amounted to more than $550 billion. That included $148 billion from credit card losses, $124 billion from business loans, and $52 billion from commercial real estate. The passing grade for all banks could help the Trump administration make its case that it is time to loosen rules for financial institutions as it implements a deregulatory agenda it hopes will boost lending and drive economic growth. Earlier this week US regulators proposed one of the most dramatic rollbacks of bank capital rules since the 2008 financial crisis as they suggested altering the so-called enhanced supplementary leverage ratio (eSLR). Banks have complained this ratio penalizes them for holding lower-risk assets such as Treasury bonds. More regulatory changes for big banks could still be on the way. Bowman, the Fed's top banking regulator appointed by Trump, made it clear in a speech Monday that revisiting the eSLR requirement is just the start of broader capital rollback considerations. "More work on capital requirements remains, especially to consider how they have evolved and whether changes in market conditions have revealed issues that should be addressed," she said. Other capital requirements under consideration for adjustment include the surcharge on global systemically important banks and the asset thresholds that define how strict regulatory standards are for each institution. On July 22, the Fed will host a conference to bring together leaders to discuss the capital framework for US banks. JPMorgan CEO Jamie Dimon has asked the administration to consider a broad set of changes. Among the biggest Wall Street banks, JPMorgan had the highest level of capital under the Fed's stressed scenario. "We expect to see additional regulatory relief measures announced for the banking industry in the coming months,' said RBC banking analyst Gerard Cassidy. 'Regulatory relief will likely lead to higher bank profitability and increased merger and acquisition activity." The Fed tests were first mandated annually by law following the 2008 financial crisis as a way of assessing the stability of the nation's giant lenders. There will also likely be changes to these Fed tests in future years. The Fed is seeking public input on the models used to determine the hypothetical losses and revenue of banks under stress, and it will use that feedback to make improvements going forward. Banks showed a smaller decline in capital under the stressed scenario this year than in years past, which the Fed says is due to volatility in the models and milder deterioration in the economy. Loan losses were also lower this year. Lenders typically use the results of the annual Fed tests to determine how much they should have on their balance sheet to absorb shocks and how much they have left over for dividends and buybacks. The Fed has asked banks not to make announcements about how much money they plan to return to shareholders until early next week. In a note earlier this week, Wells Fargo analyst Mike Mayo indicated that good stress test scores for the biggest banks would give a 'green light' for these lenders 'to deploy more capital for loans, deals, and buybacks.' Click here for in-depth analysis of the latest stock market news and events moving stock prices Sign in to access your portfolio
Yahoo
4 days ago
- Business
- Yahoo
Big US banks expected to ace stress tests, boost dividends
By Nupur Anand NEW YORK (Reuters) -The biggest U.S. lenders are expected to clear the Federal Reserve's annual health check this year, showing they have ample capital that can be used to boost dividends, analysts said. The results of the central bank's so-called 'stress tests' on Friday will determine how much cash lenders would need to hold to withstand a severe economic downturn. A less strenuous methodology this year means banks will probably perform better and return more money to investors via dividends and share buybacks, analysts said. The yearly exercise, introduced following the 2007-2009 financial crisis, is integral to capital planning for the 22 large lenders being tested. It is also used by banks to determine how much in dividends can be given to shareholders. "With the improved regulatory tone, hopes are high for some reduction in capital requirements... driven by less harsh stress tests," said Vivek Juneja, an analyst at JPMorgan. Given banks' high capital levels, he anticipated they would increase dividends by an average of about 3% and boost share repurchases. Tepid loan growth and a favorable regulatory environment will make banks more flexible as they manage capital and grow dividends. However, banks may stay cautious with capital. "Despite an improved outlook for capital return, we continue to expect management teams to remain somewhat conservative nearer-term given ongoing tariff, economic uncertainty and the timing and the magnitude of regulatory reform," analysts from Raymond James said in a report. The scenarios for this year's stress test are also expected to be less onerous versus last year. "It includes a smaller decline in U.S. real GDP, a smaller rise in unemployment rate, smaller declines in short/long-end rates and other improvements including less aggressive housing and equity pricing declines," analysts at Jefferies wrote in a note. In more good news for banks, the tests are expected to only become more manageable for banks going forward. In April, the Fed kicked off a sweeping effort to overhaul the tests, which would include, in future years, averaging results to reduce volatility and giving banks more visibility into how they are graded by the Fed. "We view this as a major positive that will help banks and regulators better align on methodology between internal and Fed-run stress tests, with the output being less of a black box," said Betsy Graseck, an analyst at Morgan Stanley. Changes in the process could begin as early as this year, she added. Wall Street firms could also see some relief in their stress capital buffers, an additional layer of capital that the Fed requires large banks to hold on top of minimum capital requirements. Goldman Sachs and Morgan Stanley, which saw their buffers increased last year, are "poised for improvements this year," the analysts at Jefferies wrote. Meanwhile, Citibank and M&T Bank could see a slight uptick in their capital requirements, said analysts at Keefe, Bruyette & Woods. Overall, analysts expect the regulatory environment for big banks to be more benign under the second administration of U.S. President Donald Trump. "Stress tests are likely to be less stressful in Trump 2.0," analysts at Raymond James said.
Reuters
4 days ago
- Business
- Reuters
Big US banks expected to ace stress tests, boost dividends
NEW YORK, June 24 (Reuters) - The biggest U.S. lenders are expected to clear the Federal Reserve's annual health check this year, showing they have ample capital that can be used to boost dividends, analysts said. The results of the central bank's so-called 'stress tests' on Friday will determine how much cash lenders would need to hold to withstand a severe economic downturn. A less strenuous methodology this year means banks will probably perform better and return more money to investors via dividends and share buybacks, analysts said. The yearly exercise, introduced following the 2007-2009 financial crisis, is integral to capital planning for the 22 large lenders being tested. It is also used by banks to determine how much in dividends can be given to shareholders. "With the improved regulatory tone, hopes are high for some reduction in capital requirements... driven by less harsh stress tests," said Vivek Juneja, an analyst at JPMorgan. Given banks' high capital levels, he anticipated they would increase dividends by an average of about 3% and boost share repurchases. Tepid loan growth and a favorable regulatory environment will make banks more flexible as they manage capital and grow dividends. However, banks may stay cautious with capital. "Despite an improved outlook for capital return, we continue to expect management teams to remain somewhat conservative nearer-term given ongoing tariff, economic uncertainty and the timing and the magnitude of regulatory reform," analysts from Raymond James said in a report. The scenarios for this year's stress test are also expected to be less onerous versus last year. "It includes a smaller decline in U.S. real GDP, a smaller rise in unemployment rate, smaller declines in short/long-end rates and other improvements including less aggressive housing and equity pricing declines," analysts at Jefferies wrote in a note. In more good news for banks, the tests are expected to only become more manageable for banks going forward. In April, the Fed kicked off a sweeping effort to overhaul the tests, which would include, in future years, averaging results to reduce volatility and giving banks more visibility into how they are graded by the Fed. "We view this as a major positive that will help banks and regulators better align on methodology between internal and Fed-run stress tests, with the output being less of a black box," said Betsy Graseck, an analyst at Morgan Stanley. Changes in the process could begin as early as this year, she added. Wall Street firms could also see some relief in their stress capital buffers, an additional layer of capital that the Fed requires large banks to hold on top of minimum capital requirements. Goldman Sachs (GS.N), opens new tab and Morgan Stanley (MS.N), opens new tab, which saw their buffers increased last year, are "poised for improvements this year," the analysts at Jefferies wrote. Meanwhile, Citibank (C.N), opens new tab and M&T Bank (MTB.N), opens new tab could see a slight uptick in their capital requirements, said analysts at Keefe, Bruyette & Woods. Overall, analysts expect the regulatory environment for big banks to be more benign under the second administration of U.S. President Donald Trump. "Stress tests are likely to be less stressful in Trump 2.0," analysts at Raymond James said.
Bloomberg
13-06-2025
- Business
- Bloomberg
Federal Reserve to Release Bank Stress Test Results on June 27
The Federal Reserve announced Friday that results from its annual bank stress tests will be released on June 27. The Fed said 22 large banks were subject to the tests, which evaluates lenders' resilience by estimating losses, net revenue and capital levels under a hypothetical recession. The scenario included a severe global recession with heightened stress in commercial and residential real estate markets and corporate debt markets, according to the Fed's statement.
