America’s largest banks would remain well capitalized in the event of a severe economic shock, the Federal Reserve (Fed) said after the annual health check of financial institutions, paving the way for them to issue share buybacks and dividends.
The 34 supervised by the Fed, with more than $100 billion in assets, would suffer combined losses of $612 billion in a hypothetical severe recession, the central bank said, but that would leave them with about twice the amount of capital required. under their rules.
As a result, banks including JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs can use their excess capital to issue dividends and buybacks to shareholders.
Although the 2022 scenarios were designed before the war in Ukraine and the current hyperinflationary outlook, it should reassure investors and monetary authorities that the country’s banks are well prepared for a possible recession in the country later this year or the next.
On the other hand, the president of the Fed, Jerome Powell, pointed out that the commitment to control high inflation is “unconditional”, but that it would be accompanied by the risk of higher unemployment.
“We need to restore price stability because without that we will not be able to have a sustained period of maximum employment where the benefits are widely distributed,” Powell said.