After passing the Federal Reserve's stress test, major Wall Street banks have raised their dividends
After passing the annual stress tests conducted by the Federal Reserve, major US banks have announced plans to increase dividends and stock buybacks. These banks have gained confidence in the proposed stricter capital requirements and have increased their dividend payouts. Despite passing the tests, stress tests remain a controversial topic
According to the Zhitong Finance and Economics APP, earlier this week, after easily passing the Federal Reserve's annual stress tests, major U.S. banks such as JPMorgan Chase (JPM.US), Goldman Sachs (GS.US), and Bank of America (BAC.US) announced on Friday that they would increase dividends.
Just two days ago, regulatory evaluations showed that all 31 banks under review could maintain sufficient capital to withstand an economic recession scenario.
Citigroup (C.US), Wells Fargo (WFC.US), Morgan Stanley (MS.US), and several other major banks also raised dividends. In addition, JPMorgan Chase and Morgan Stanley approved stock buyback plans of up to $30 billion and $20 billion respectively.
This year, many banks have increased dividend payouts as they are confident that they will be able to dilute proposed stricter capital requirements (i.e., Basel III endgame rules).
The Federal Reserve required these banks to wait until after the market closed on Friday to announce the latest news, allowing each company and investor time to digest these results.
This year's stress test targets banks with assets of at least $100 billion. For the entire sector, the so-called common equity tier 1 capital ratio - considered the highest quality regulatory capital - would fall to 9.9% in a "severely adverse" economic scenario, well above the minimum requirement of 4.5%.
Although banks passed the tests smoothly, stress tests remain a subject of intense debate between economists and policymakers. Francisco Covas, head of research at the American Bank Policy Institute, said that the excessive volatility in the Federal Reserve's models means that these scenarios and tests should be subject to stricter public oversight