Large Banks Performed Well in Fed Stress Test: S&P Global Ratings

Share buybacks by large banks will likely remain subdued this year despite “encouraging” results from the Federal Reserve’s latest stress test, S&P Global Ratings said in a non-rating action titled “Banks Held Up Well In The Fed’s Stress Test, But They Likely Won’t Ramp Up Share Buybacks.” (subscription)

The Federal Reserve’s latest stress test show capital levels at all 23 participating banks stand well above their required minimums and the banks themselves are well positioned to weather a severe recession, S&P noted.

But positive stress test results likely will not spur these banks to repurchase more of their own shares, the report said.

“We think they’re opting to hold their capital for now–partly because of economic uncertainty and partly because of regulatory uncertainty surrounding capital rules,” S&P Global Ratings credit analyst Stuart Plesser said.

S&P noted the stress test did not model a buildup of unrealized losses in banks’ securities portfolios as interest rates are expected to decline.

The report also explored potential ways the Fed might adjust its stress test process going forward.