Stress tests

Comerica, Regions and KeyCorp executives say their companies will proceed with caution despite the green light from the Federal Reserve to buy back stock in case they have to cover a surge in loan growth as the economy recovers.

The Federal Reserve imposed the restrictions after conducting supplemental stress tests tied to the pandemic. But Vice Chair of Supervision Randal Quarles says it is now clear banks would have had sufficient capital regardless.

The Alabama company is instead on the hunt for nonbank acquisition candidates as well as employees or clients it could lure away from regional banks that have announced merger deals recently, John Turner says.

Federal Reserve Gov. Lael Brainard said "scenario analysis" is distinct from traditional regulatory tools to assess capital strength, but can measure the long-term impact of weather events and the transition to a greener economy.

Nineteen of the nation's largest banks must show how they'd withstand pressures in the commercial real estate and corporate debt markets that would accompany a severe global recession.

Under the Federal Reserve’s loosened restrictions, big banks can buy back a limited amount of their stock starting next quarter, but only JPMorgan Chase has announced detailed plans to do so.

The Federal Reserve's “midcycle” assessment — conducted in light of the COVID-19 pandemic — said the path of the economic recovery is still uncertain even though the banks that were evaluated maintained adequate capital levels under hypothetical scenarios.

As with most things related to 2020, COVID-19 will be a deciding factor as the Federal Reserve considers whether banks are able to increase their dividends or resume share buybacks.

Executives from U.S. banks continue to play down near-term expectations, but they say customers are growing more confident ahead of the rollout of coronavirus vaccines, and that key commercial lending segments could drive an economic rebound.

Global regulators are considering a universal stress test for climate change that requires lenders to use a 30-year horizon, a difficult and speculative projection of the energy industry that could harm bank financials.