Stress tests

This year’s stress tests examined 23 banks including JPMorgan Chase and Goldman Sachs, with the remainder of the firms on an “every other year” test cycle. The capital requirements for those remaining firms are unchanged from last year.

Sixty-one percent of executives at large U.S. banks said their institution would be prepared to comply with the kind of testing now happening in the U.K., according to a new survey. But experts question whether bankers are underestimating the data-gathering challenges ahead.

Nine of the 12 largest banking companies in the U.S. proposed higher quarterly payouts to shareholders. In announcing the actions, the banks touted their strength after more than a year of economic dislocation.

Some of the 23 large banks that participated in last week’s stress tests will be better positioned to reward shareholders than others, since they padded their capital amid the pandemic. Still, all are expected to tread cautiously amid ongoing economic uncertainty.

Four companies — Regions Financial, MUFG Americas Holdings and the U.S. arms of the Royal Bank of Canada, BMO Financial— felt they had something to prove to the Federal Reserve after being assigned higher capital buffers than most of their peers last year. Will their decisions pay off for shareholders?

The Federal Reserve found that under its harshest stress-test scenario, bank capital ratios would decline to 10.6% on average — well above the 4.5% minimum requirement. Restrictions imposed on dividend payments and share repurchases during the economic crisis last year will be lifted after June 30.

The biggest U.S. banks, led by JPMorgan Chase and Bank of America, are expected to pay out $142 billion in capital to shareholders after clearing this year’s stress tests.

Nineteen of the nation's largest banks plus four smaller firms will be tested against baseline and severely adverse economic scenarios. The central bank will release details on their performance on June 24.

The White House directive may lead regulators to develop new mortgage underwriting standards, stress-test requirements and flood insurance policy, observers said.

Regulators around the world are exploring how to assess banks' exposures to climate change risks. But they'll have to tackle legal, economic and modeling problems that don’t have obvious solutions.