The Federal Reserve on Thursday stated a protracted financial downturn might saddle the nation’s greatest banks with as much as $700 billion in losses on soured loans and ordered them to cap dividends and droop share buybacks to preserve funds.
In a worst-case situation, the place unemployment stays excessive and the financial system doesn’t bounce again for a number of quarters, the 33 largest U.S. banks would undergo heavy mortgage losses that may erode the capital buffers meant to maintain them on secure monetary footing, the Fed stated when it introduced the outcomes of its annual stress checks.
Designed to gauge the well being of the nation’s banking system, the stress checks had been expanded this 12 months to review the impact of the downturn introduced on by the coronavirus pandemic. The Fed stated U.S. banks are robust sufficient to resist the disaster and restricted dividend payouts and buybacks to ensure they keep that manner.
Banks, which is able to announce their dividend plans for subsequent quarter as quickly as Monday, received’t have the ability to make payouts which might be better than their common quarterly revenue from the 4 most up-to-date quarters.