Feb. 15, 2021, 9:30 a.m. EST

The Fed’s new stress test is for a scenario easier than last year’s actual events

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Bank of America Corp. (BAC)
  • X
    Citigroup Inc. (C)
  • X
    JPMorgan Chase & Co. (JPM)

or Cancel Already have a watchlist? Log In

By Steve Goldstein

The Federal Reserve on Friday announced the conditions for the annual stress test simulations — and they are actually easier than what lenders experienced last year.

A tweet from the Fed shows this quite clearly. The unemployment rate spike in the central bank’s “severely adverse” scenario isn’t of the same magnitude as what lenders experienced when the COVID-19 pandemic virtually shut down the U.S. economy.

The Fed’s severely adverse scenario shows an unemployment rate rising 4% and the economy contracting 3%. The unemployment rate last year rose from 3.5% in February to 14.8% in April, and the U.S. economy fell 9% in the second quarter from the year-earlier quarter.

This year’s stress test looks at what would be a global downturn with substantial stress in commercial real estate and corporate debt markets.

The stress tests are an annual tradition springing from the passage of the Dodd-Frank bank reform law after the 2008 financial crisis. They are designed to assess the resilience of the top 19 banks that operate in the U.S. — such as Bank of America /zigman2/quotes/200894270/composite BAC -0.58% , Citi /zigman2/quotes/207741460/composite C -0.74% , and JPMorgan Chase /zigman2/quotes/205971034/composite JPM -1.37% — to severe recessions. Other big banks such as Ally Financial /zigman2/quotes/206227672/composite ALLY -3.34% and BNP Paribas’ /zigman2/quotes/206351084/delayed FR:BNP -0.41% U.S. operations are on a two-year stress-test cycle and can opt into this test.

The Fed can limit or forbid stock buybacks and dividends depending on how well banks stack up.

/zigman2/quotes/200894270/composite
US : U.S.: NYSE
$ 47.68
-0.28 -0.58%
Volume: 13.01M
Oct. 27, 2021 10:29a
P/E Ratio
14.40
Dividend Yield
1.75%
Market Cap
$403.58 billion
Rev. per Employee
$445,624
loading...
/zigman2/quotes/207741460/composite
US : U.S.: NYSE
$ 70.13
-0.52 -0.74%
Volume: 4.64M
Oct. 27, 2021 10:29a
P/E Ratio
6.60
Dividend Yield
2.89%
Market Cap
$143.19 billion
Rev. per Employee
$423,538
loading...
/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 169.06
-2.34 -1.37%
Volume: 1.89M
Oct. 27, 2021 10:29a
P/E Ratio
10.78
Dividend Yield
2.35%
Market Cap
$512.17 billion
Rev. per Employee
$492,730
loading...
/zigman2/quotes/206227672/composite
US : U.S.: NYSE
$ 48.68
-1.68 -3.34%
Volume: 1.21M
Oct. 27, 2021 10:29a
P/E Ratio
5.96
Dividend Yield
2.04%
Market Cap
$18.16 billion
Rev. per Employee
$1.13M
loading...
/zigman2/quotes/206351084/delayed
FR : France: Euronext Paris
57.94
-0.24 -0.41%
Volume: 969,723
Oct. 27, 2021 4:14p
P/E Ratio
9.37
Dividend Yield
4.59%
Market Cap
€72.67 billion
Rev. per Employee
€461,970
loading...

This Story has 0 Comments
Be the first to comment
More News In
Economy & Politics

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.