Fed: Big U.S. banks are strong

Federal Reserve says 33 biggest have ample capital

The Federal Reserve said Friday that the 33 largest U.S. banks are in strong shape despite the pandemic’s shock.

The banks have ample capital cushions girding them against unexpected losses and that will also enable them to keep lending even under the most severe straits, the central bank said.

The Fed disclosed the results from a special second round of “stress tests” that it added this year because of damage to the economy from the virus. The pandemic has killed more than 300,000 Americans, closed hundreds of thousands of businesses and pushed unemployment to levels not seen since the Great Depression.

Nine months after the pandemic paralyzed the economy, a resurgence of coronavirus cases threatens its recovery just as the first vaccines are starting to be administered.

The tests showed that all 33 banks remain above their minimum requirements for capital — money they don’t have to pay back to creditors or depositors — to protect against risk, the Fed said.

Still, the regulators decided to maintain restrictions on banks paying out dividends through March. Buybacks of company stock, however, will be permitted again, with some limits.

“The banking system has been a source of strength during the past year, and today’s stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy,” Randal Quarles, the Fed’s vice chair for supervision, said in a statement.

In September, the Fed extended the restrictions on dividends and share buybacks through year’s end, based on stress test results in June that showed how the banks would perform under severe economic conditions if they took those dividend or stock actions.

Increasing dividends costs money. Regulators don’t want banks to shrink their capital reserves and leave the financial system vulnerable during this precarious time for the economy. It was the first time U.S. regulators had ordered such restrictions since the Great Recession’s aftermath a decade ago.