Bank Dividends Rise: Fed Stress Test Results

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase & Co., Morgan Stanley and Wells Fargo were among the large lenders that boosted their dividends after the stress tests, Bloomberg reported Tuesday (July 1).

All 22 banks that were examined by the Fed last week passed the stress tests, showing that they had enough capital to withstand hypothetical crisis scenarios, according to the report.

The results of these annual examinations traditionally help determine how much capital banks return to shareholders through dividends and buybacks, the report said.

When the Federal Reserve announced the results of the stress tests Friday (June 27), it said in a press release that it found that the large banks are well positioned to “weather a severe recession” while staying above their minimum capital requirements and continuing their lending.

“Large banks remain well capitalized and resilient to a range of severe outcomes,” Federal Reserve Vice Chair for Supervision Michelle W. Bowman said in the release.

The Federal Reserve said in the same release that the board proposed a rule in April that would average stress test results over two consecutive years, explaining that this would reduce volatility from the stress test when calculating a bank’s capital requirement.

The board plans to disclose models and seek public comment on them later this year before considering finalizing the rule, according to the release.

“One way to address the excessive volatility in the stress test results and corresponding capital requirements is for the Board to finalize the proposal that would average two consecutive years of stress test results, which was released in April,” Bowman said in the release.

In another potential change, it was reported Wednesday (June 25) that the Federal Reserve voted to advance a proposal that would ease the “enhanced supplementary leverage ratio” that determines the amount of capital banks must hold against relatively low-risk assets.

Under the proposed reform, the amount of capital that banks must set aside will depend on the size of the role they play in the global financial system, equaling half of their “GSIB Surcharge,” rather than the current requirement that they hold a flat percentage of capital in reserve against all assets.