The Federal Reserve announced Thursday that temporary restrictions on dividend payments and share buybacks by the country's largest banks may end after June 30, after the results of the latest stress test show companies have enough capital to withstand a severe global recession .
The so-called stress tests showed that 23 major banks, including Bank of America
could absorb a cumulative loss of $ 474 billion, with a global recession and the US unemployment rate rising 4 percentage points to a high of 10.75%.
The Fed put restrictions on bank withdrawals during the pandemic to save capital.
"Last year the Federal Reserve ran three stress tests on several different hypothetical recessions and all of them confirmed that the banking system is well positioned to support the ongoing recovery," Randal Quarles, Fed vice chairman of oversight, said in a statement .
The aggregate tier 1 capital ratio of firms' Common Equity Tier 1, which compares high quality capital to risk-weighted assets, would decrease from an actual level of 13% in the fourth quarter of 2020 to a minimum level of 10.6%. That is still more than twice its minimum requirements, said the Fed.
The stress test is intended to hit the banks with a hard shock to test what is happening to their capital. This year, all banks individually stayed above their minimum capital level.
Wall Street analysts expect the Fed's decision to result in much higher dividends and share buybacks.
Critics say both Fed and Congress support for the economy has also helped the health of banks. Senior Fed officials said government support allowed banks to raise capital in 2020. But last year's stress tests showed that without this support, banks would have reduced their capital in 2020, albeit not to levels that would have led to financial instability.
The Fed said it expected banks to wait until 4:30 p.m. to announce their planned corporate actions on Monday, June 28th.
The Fed said in March it was ready to lift temporary restrictions on dividend payments and share buybacks subject to the completion of the annual stress test.