Largest banks all pass Fed’s annual stress test

investmentnews.com:

The country’s largest banks are well positioned to weather a severe recession, according to the results of the Federal Reserve Board’s annual bank stress test.

All 23 banks tested remained above minimum capital requirements during a simulated recession that projected total losses of $541 billion. The results of the test, which the Fed released Wednesday, are used to determine how much capital banks need to set aside as a cushion, potentially clearing the way for dividends and stock buybacks as requirements are met.

The balance sheets of JPMorgan Chase and Wells Fargo both demonstrated more resiliency than in previous years’ tests, making the banks likely to see capital requirements eased, according to Bloomberg.

“The market will look at this as good news,” said Christian Conner, a partner and financial advisor at Prime Capital Investment Advisors in Springfield, Missouri. “This will allow banks to pay out higher dividends or be able to buy their stock back, thereby increasing the value to shareholders. Given the importance of the financial industry as a whole, this should deepen investor confidence and broaden their desire for financial equities.”

Not everyone agrees with the Fed’s assessment. The stress test doesn’t include smaller regional banks like the ones that fell into turmoil during the spring, said Thomas Balcom, founder of 1650 Wealth Management, an independent registered investment advisor headquartered in Lauderdale-by-the-Sea, Florida.

“This test did not include a number of regional banks such as Silicon Valley Bank, Signature Bank, and First Republic who did not make it through the rate hike cycle unscathed,” Balcom said. However, the results appeared positive for the stock market, which jumped on Thursday,