Federal Reserve to Conduct Second Round of Bank Stress Tests - TheStreet

Federal Reserve to Conduct Second Round of Bank Stress Tests

Fed also extends cap on bank dividends and ban on share repurchases until 2021
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The Federal Reserve said Wednesday it will conduct a second round of stress tests of large financial institutions later this year “to further test the resiliency of large banks.”

In addition, the Fed said it is extending caps on bank dividends and its ban on bank share repurchases until 2021.

In a statement, the Fed cited “continued economic uncertainty from the coronavirus response,” for the moves.

Results of the stress tests will be released before the end of the year

The caps on dividends and ban on repurchases apply to large banks, those with more than $100 billion in total assets. The dividend caps are tied to a formula based on recent income, according to the statement.

An earlier round of stress tests completed in June found that large banks “were sufficiently capitalized.” The Fed nevertheless imposed restrictions to preserve bank capital as a cushion against loan losses and to support lending amid the economic chaos caused by economic shutdowns to slow the spread of the coronavirus.

The Fed said the capital positions of large banks remained strong in the third quarter in spite of the the restrictions.

Large banks were little changed in after-hours trading. Wells Fargo  (WFC) - Get Report shares lost 4 cents, or 0.2%, to $23.47. Bank of America  (BAC) - Get Report shares fell 7 cents, or 0.3%, to $24.02.

Financial stocks were generally higher in the regular session on an up day for Wall Street.

The S&P 500 financials sector index rose 4.91, or 1.24%, to 400.28.

The financial select SPDR ETF  (XLF) - Get Report rose 32 cents, or 1.35%, to $24.07.