Banks are projected to perform in health tests.
Pete Schroeder, 6-26-2023, Covers financial regulation and policy out of the Reuters Washington bureau, with a specific focus on banking regulators. Has covered economic and financial policy in the U.S. capital for 15 years. Previous experience includes roles at The Hill newspaper and The Wall Street Journal. Received a Master's degree in journalism from Georgetown University, and an undergraduate degree from the University of Notre Dame. “Big US banks to fare well in annual health checks despite spring turmoil,” Reuters, https://www.reuters.com/business/finance/big-us-banks-fare-well-annual-health-checks-despite-spring-turmoil-2023-06-26/ ---ML
WASHINGTON, June 26 (Reuters) - Big U.S. lenders are expected to show they have ample capital to weather any fresh turmoil in the banking sector during this week's Federal Reserve health checks, although resulting investor payouts are likely to dip slightly, analysts said.
The central bank on Wednesday will release the results of its bank "stress tests" which assess how much capital banks would need to withstand a severe economic downturn.
The annual exercise, introduced following the 2007-2009 financial crisis, is integral to banks' capital planning, dictating how much cash they can return to shareholders via dividends and share buybacks.
The 2023 tests come in the wake of this year's banking crisis in which Silicon Valley Bank and two other lenders failed. They found themselves on the wrong end of Fed interest rate hikes, suffering large unrealized losses on their U.S. Treasury bond holdings which spooked uninsured depositors.
Wall Street lenders including Citigroup Inc (C.N), Bank of America (BAC.N), JPMorgan Chase (JPM.N), Goldman Sachs Group (GS.N), Wells Fargo (WFC.N), and Morgan Stanley (MS.N) usually attract the most attention. But with continued investor jitters over the sector, smaller lenders including Capital One, U.S. Bancorp, and Citizens are likely to be in the spotlight too.
Despite the turmoil, and the exam being the hardest in years, bank analysts and executives expect the 23 lenders being tested will show capital in excess of regulatory minimums.
"The 2023 Fed Stress Test throws the kitchen sink at banks and allows them to show that the largest banks can handle one of the toughest tests yet," Wells Fargo analysts wrote on Thursday.
"Dividends should be secure, and banks should have excess capital to return to shareholders under most circumstances, even if at a slower pace than in the past."
The industry has performed well in recent years, although the Fed has faced criticism after the spring bank failures for not probing bank weaknesses for rising rates in prior tests.