The country’s largest banks are well positioned to weather a severe recession, according to the results of the Federal Reserve Board’s annual bank stress test.
All 23 banks tested remained above minimum capital requirements during a simulated recession that projected total losses of $541 billion. The results of the test, which the Fed released Wednesday, are used to determine how much capital banks need to set aside as a cushion, potentially clearing the way for dividends and stock buybacks as requirements are met.
The balance sheets of JPMorgan Chase and Wells Fargo both demonstrated more resiliency than in previous years’ tests, making the banks likely to see capital requirements eased, according to Bloomberg.
“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.”