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The global headquarters of JPMorgan Chase & Co. is pictured on April 17, 2019 in New York City.
JOHANNES EISELE / AFP / Getty Images
The latest Federal Reserve stress test results have been released, and if the stock market is any indication, it looks like many big banks have passed.
Starting next month, the central bank will allow banks to repurchase a certain number of shares based on their earnings from the previous year. This is a change from this year: in March, eight major banks halted their share buyback programs due to the coronavirus. In June, the Fed demanded banks stop repurchases and capped their dividend payments based on recent income.
A few large banks have already responded to the Fed’s decision by announcing buybacks that will begin in the first quarter of 2021. In a statement following the Fed’s announcement,
JP Morgan
Chase said his board of directors approved a new $ 30 billion share buyback program.
Goldman Sachs
has announced its intention to resume its share buyback program next quarter.
The Fed’s move was welcome but somewhat surprising. Although the Fed frequently touted the strength of the financial sector, it was expected that buybacks could not resume until the economy was on a more solid footing. The rise in coronavirus cases and the economic restrictions they have caused have led many to believe that buyouts would be allowed in the second half of next year.
It was the second round of stress tests the big banks had to go through. Banks performed well overall in June, but given the unprecedented nature of the pandemic, the Fed wanted to test them again. This latest round of tests assumed high unemployment and an economy that took several quarters to recover. Even when the test cases were announced, the Fed admitted that the scenarios were “significantly more severe than most current baseline projections for the trajectory of the US economy.”
Bank stocks gained on the stock market after the announcement. At approximately 6:00 p.m. New York time, the
SPDR Financial Sector Fund
(XLF) rose 3.3%, shares of JPMorgan rose 5%, stock of Goldman Sachs rose 5.1% and
Bank of America
was up 4.7%.
Write to Alexandra Scaggs at [email protected]
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