The Fed's troubling stress test calculations

12 July 2018/No Comments
By Nick Dunbar

At the end of June, the top six US banks last week boasted of pass grades on the Federal Reserve annual stress tests, and announced that they would collectively return some $111 billion of capital to shareholders. Boosting dividends along with share buybacks, the six banks plan to pay out $30 billion more than last year.

In the case of Bank of America and Wells Fargo, these banks are now returning some 80 per cent of their pre-tax profit to shareholders. Such actions show that the Fed has effectively removed the capital constraints that these banks operated under, as the US economy continues to heat up. Was this the right decision?

To find out, Risky Finance has done a deep dive into Dodd-Frank annual stress test (DFAST) and Comprehensive Capital Analysis and Review (CCAR) disclosures. Following up on an initiative last year, we’ve now fully incorporated the data into our banking visualisation tool which is available to subscribers.

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