Recently the Federal Reserve conducted the annual stress test of the largest 23 banks in the nation. During the simulated recession, the Fed found that projected total losses could be $541 billion, which according to Federal Reserve, still put them all above minimum capital requirements.
The results of the stress test—which are used are used to determine how much capital banks need to set aside as a cushion or reserve—were released on Wednesday, June 28.
Smaller regional banks are not included in the testing, which some criticize since the Silicon Valley bank failures we saw in the U.S. last spring. You can read more about that here: Turmoil in the Banking Sector: Silicon Valley Bank Analysis & Implications.
Nevertheless, large banks showed resilience, and the goal is to measure banks’ ability to continue lending in difficult scenarios. For instance, the 2023 version of the stress test included “a 40% decline in commercial real estate prices, a substantial increase in office vacancies, a 38% decline in housing prices and a spike in the unemployment rate, resulting in a significant decline in economic output.”
Investment News spoke with Christian Conner in their June 29 article.
“The market will look at this as good news,” said Christian Conner, a partner and financial advisor at Prime Capital Investment Advisors in Springfield, Missouri. “This will allow banks to pay out higher dividends or be able to buy their stock back, thereby increasing the value to shareholders. Given the importance of the financial industry as a whole, this should deepen investor confidence and broaden their desire for financial equities.”
Read the complete article here: https://www.investmentnews.com/largest-banks-all-pass-feds-annual-stress-test-239359
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