Banks in America Survive the Stress Test by the Feds but Some May Face Increased Capital Requirements

In a bid to keep the banking sector stable and prevent an economic meltdown, all banks in the United States are subjected to an annual stress test. During the stress test, the feds determine how much capital each bank has, the value of the capital and the projects the banks are engaging in. Through the stress test, the feds are able to determine the consequences of an adverse financial or economic shock on the capital. Banks that fail the test may have to face restrictions in their distribution of money to shareholders. It was created as part of the reforms to prevent economic meltdown after the 2008 financial crisis.

American Banks Pass Stress Test But Some May Face Increased Capital Requirements

The feds recently announced that the banks in America passed their stress tests. This announcement has paved a way for shareholders to receive large payouts without any restrictions from the feds. Following the announcement, most of the major banks announced that they have increased their dividend distribution by up to 10%.

The big four commercial banks, Bank of America, JPMorgan & Chase, Citigroup, Wells Fargo, along with the two big investment banks, Morgan Stanley and Goldman Sachs, bought their own stock with the total sum of $93.1 billion in 2018. By the end of the year 2019, this stock is forecasted to be worth $117.9 billion.

Following the successful completion of the stress test, the feds approved the capital plans for the top 18 banks in the United States. However, the Fed insists that the capital requirement approval is temporal as it still sees weaknesses in how these banks intend to share their dividends and repurchases. It’s not clear for now but the capital requirements for some banks may increase.

Madison Iszler

Madison Iszler is a Business Assent freelance writer who also contributes to Vancouver, North Bank Magazine, The Columbian, Oregon Wine Press, among others. Madison Iszler covers politics, technology and business topics for the Business Assent. Before joining the Express-News, Madison covered retail, small businesses and other topics at the Albany Times Union.

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