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6/25/2020

Federal Reserve Board - Federal Reserve Board releases results of stress tests for 2020 and additional sensitivity analyses conducted in…

Press Release
June 25, 2020

Federal Reserve Board releases results of stress tests for 2020 and
additional sensitivity analyses conducted in light of the coronavirus event
For release at 4:30 p.m. EDT
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The Federal Reserve Board on Thursday released the results of its stress tests for 2020 and additional
sensitivity analyses that the Board conducted in light of the coronavirus event.
"The banking system has been a source of strength during this crisis," Vice Chair Randal K. Quarles said,
"and the results of our sensitivity analyses show that our banks can remain strong in the face of even the
harshest shocks."
In addition to its normal stress test, the Board conducted a sensitivity analysis to assess the resiliency of large
banks under three hypothetical recessions, or downside scenarios, which could result from the coronavirus
event. The scenarios included a V-shaped recession and recovery; a slower, U-shaped recession and
recovery; and a W-shaped, double-dip recession.
In the three downside scenarios, the unemployment rate peaked at between 15.6 percent and 19.5 percent,
which is significantly more stringent than any of the Board's pre-coronavirus stress test scenarios. The
scenarios are not predictions or forecasts of the likely path of the economy or financial markets.
In aggregate, loan losses for the 34 banks ranged from $560 billion to $700 billion in the sensitivity analysis
and aggregate capital ratios declined from 12.0 percent in the fourth quarter of 2019 to between 9.5 percent
and 7.7 percent under the hypothetical downside scenarios. Under the U- and W-shaped scenarios, most
firms remain well capitalized but several would approach minimum capital levels. The sensitivity analysis
does not incorporate the potential effects of government stimulus payments and expanded unemployment
insurance.
In light of these results, the Board took several actions following its stress tests to ensure large banks remain
resilient despite the economic uncertainty from the coronavirus event. For the third quarter of this year, the
Board is requiring large banks to preserve capital by suspending share repurchases, capping dividend
payments, and allowing dividends according to a formula based on recent income. The Board is also
requiring banks to re-evaluate their longer-term capital plans.
All large banks will be required to resubmit and update their capital plans later this year to reflect current
stresses, which will help firms re-assess their capital needs and maintain strong capital planning practices
during this period of uncertainty. The Board will conduct additional analysis each quarter to determine if
adjustments to this response are appropriate.
During the third quarter, no share repurchases will be permitted. In recent years, share repurchases have
represented approximately 70 percent of shareholder payouts from large banks. The Board is also capping
dividend payments to the amount paid in the second quarter and is further limiting them to an amount based
on recent earnings. As a result, a bank cannot increase its dividend and can pay dividends if it has earned
sufficient income.

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200625c.htm

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6/25/2020

Federal Reserve Board - Federal Reserve Board releases results of stress tests for 2020 and additional sensitivity analyses conducted in…

The Board also released the results of its full stress test designed before the coronavirus. The results from
that test are comparable to the V-shaped downside scenario in the sensitivity analysis, in aggregate, and
show that all large banks remain strongly capitalized. The Board will use the results of this test to set the new
stress capital buffer requirement for these firms, which will take effect, as planned, in the fourth quarter.
Additionally, the Board will not be objecting to five foreign banks whose capital planning practices were
evaluated as part of the stress tests.
For media inquiries, call 202-452-2955.

Dodd-Frank Act Stress Test 2020: Supervisory Stress Test Results (PDF)
Assessment of Bank Capital during the Recent Coronavirus Event (PDF)
Statement by Vice Chair for Supervision Quarles
Statement by Governor Brainard

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Board Votes

Last Update: June 25, 2020

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102