WASHINGTON—The Federal Reserve gave large U.S. banks a clean bill of health as they emerge from the coronavirus crisis, paving the way for the lenders to boost their payouts to investors after June 30.
In a vote of confidence for the banks, including Goldman Sachs Group Inc. and Wells Fargo & Co., the Fed on Thursday said it would end temporary limits on dividend payments and share buybacks after all 23 firms performed well in annual stress tests.
The stress tests gauge banks’ ability to maintain strong capital levels and keep lending to businesses and households in a severe recession. In a worst-case scenario, featuring a severe global recession in which the U.S. sees double-digit unemployment, the 23 large banks would collectively lose more than $470 billion, the Fed said in a release. Their capital ratios would decline to 10.6%, still more than double their minimum requirements, the release said.
The Fed typically performs the test annually but added a second test last fall to account for pandemic-related stresses.
“Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions, and all have confirmed that the banking system is strongly positioned to support the ongoing recovery,” said Randal Quarles, the Fed’s vice chairman of supervision.
