4 Largest U.S. Banks Pass Stress Tests: Time to Buy?
Investors were understandably nervous ahead of one of the most controversial stress tests in recent years as volatility in the sector escalated since the collapse of Silicon Valley and Signature Bank in March.
However, the 23 largest U.S. banks successfully passed the Federal Reserve's annual stress tests with flying colors, remaining above capital requirements during a hypothetical global recession, despite projections indicating a loss of over $500 billion.
This achievement highlights the resilience of large banks, demonstrating their ability to continue lending to households and businesses even during a hypothetical recession. Essentially, the current level of capitalization of U.S. banks positions them favorably in the worst-case scenario envisioned by the Fed.
The Fed's hypothetical scenario for this year's stress tests included a new component called «preliminary market impact.» It featured inflation that was less severe than the adverse baseline scenario but still subject to increased inflationary pressures due to public expectations, as reported by EFE.
This additional component was only applied to banks listed as 'globally systematically important' institutions (G-SIBs), which include Wells Fargo & Company (NYSE:WFC), Bank of America Corp (NYSE:BAC), and Morgan Stanley (NYSE:MS).
The positive outcome of the stress tests has had a significant impact on the stock market, leading to sector-wide gains on Wall Street. In fact, the KBW Bank rose by 5% in June, marking its first positive monthly closure since last January.
Source: Investing.com
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