Stress tests

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.

For banks that pass this year’s stress tests, the Federal Reserve said it will eliminate the restrictions on dividends and share buybacks while subjecting those institutions instead to the stress capital buffer.

A former Federal Reserve employee admitted to illegally taking documents, including bank stress test data, after deciding to leave the board, U.S. prosecutors said Friday.

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.