Federal Reserve reported on Thursday that the largest US banks were able to easily weather the severe downturn seen last year during the coronavirus pandemic. Of course, this is not a surprise given the support provided by the central bank to the economy.
The Fed's annual stress test said that all 23 institutions that participated "well above" the minimum capital requirement. Because of this, the shares of largest US banks rose sharply, pushing the KBW index up by 1.5%.
The scenarios that the banks passed include: a "severe global recession" that would hit commercial property and corporate debt owners, unemployment hitting 10.8% and a 55% fall in the stock market. The Fed affirmed that even though the industry will incur losses around $ 474 billion, the capital to cover it is still more than twice the minimum required level.
The report also noted that thanks to the help from legislators and from the Fed itself, banks have achieved very good results during the crisis. No additional capital accumulation was required for expected loan losses.
However, during the pandemic, banks had to go through additional restrictions such as bans on paying dividends to shareholders and buybacks. Fortunately, this ban will be lifted shortly.
The Fed also said that after passing the exam, the industry will regain some degree of autonomy, which was lost since the start of the coronavirus pandemic.
But banks will still be subject to some restrictions, although they will be protected by additional capital. As such, many analysts expect dividend payments to begin in July this year. Meanwhile, the Fed said it is better to wait until early next week before banks reveal their plans in this direction.
