A practice that began because of the Great Recession continued during the pandemic. This is the annual financial control of the largest banks in the country. The results are important for building confidence in the financial sector. For shareholders of these banks, the stress tests determine whether they will be rewarded with larger dividend payouts and share buybacks.
Investors will learn the results of the latest tests after the closing bell Thursday of the coming week.
Last year, all 19 banks’ tests received passing marks. Yet the Federal Reserve’s prescription was to suspend share buybacks and limit dividends. After all, the COVID-19 pandemic was raging, there were no vaccines yet, and the U.S. economy had just experienced its biggest contraction on record. At the end of last year, after a second round of tests, the Fed relaxed its limits, but still limited dividends and share buybacks.
If the central bank drops these limits, expect several banks to announce dividend increases before sunset on Thursday.
This assessment of the financial resilience of the biggest banks comes as banks are inundated with money. JPMorgan Chase CEO Jamie Dimon said his bank had $ 500 billion in cash in store. He waits for interest rates to rise before putting that money to work for the economy. And he expects inflation to be “more than transient,” he told a commercial real estate conference last week.
For banks enjoying good financial health Thursday, the pressure will be exerted so that they return part of their cash to shareholders. Shares of major banks like JPMorgan Chase, Bank of America and Wells Fargo have significantly outperformed the S&P 500 so far this year. Investors bet on a healthy balance sheet.
Jamie Dimon, CEO of JPMorgan Chase & Co., said his bank has accumulated $ 500 billion in cash.
Financial reporter Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is vice president of information. He is the former co-presenter and editor of the “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.