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Stress Tests Could Result in Slower Buybacks Among Largest US Banks

EQUITIES
  • Worth watching later today: At 2130BST/1630ET, the Fed release the results of their 2022 stress testing of US banks (methodology here: https://www.federalreserve.gov/publications/files/... , scenarios here: https://www.federalreserve.gov/newsevents/pressrel... )
  • The tests look to gauge whether the biggest banks in the US have adequate capital to cover losses that emanate from a significant theoretical economic downturn. The Fed have flagged that this year's scenarios include a severe global recession twinned with considerable stress in commercial real estate and corporate debt. 34 banks have been assessed this year.
  • Surplus capital in the US banking sector is estimated at ~$75bn, but results this week could prompt lenders to raise more in surplus capital to head off higher stress capital buffers. This may force the largest US banks to slow down their pace of share buybacks in the coming quarters – particularly the drop in excess capital across Q1 due to higher market rates and bond portfolio losses.
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