Federal Reserve confirms that all of the 34 major banks pass their annual CCAR macro stress tests.

Apple Boston

2017-05-31 06:36:00 Wed ET

The Federal Reserve rubber-stamps the positive conclusion that all of the 34 major banks pass their annual CCAR macro stress tests for the first time since the global financial crisis of 2008-2009. These banks are Citigroup, JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs etc, which respond to this great news by increasing their hefty dividends and share repurchases (upward 65% from the previous fiscal year). Fed approval motivates all of the largest banks to achieve healthy equity capital levels and most major banks to substantially improve their ongoing capital adequacy plans.

The only exception is Capital One, which needs to resubmit its capital adequacy plan later. In response to this approval, many of these banks have announced to distribute more than 85% of current net income to their shareholders in the form of cash dividends and share repurchases in the next few years. Whether the Trump administration overhauls Dodd-Frank macroprudential stress tests with leaner financial regulation remains a hidden catalyst for the current stock market rally for banks, insurance companies, and other financial institutions. Fiscal stimulus and lower corporate income taxation boost bank stock prices.

Overall, bank stocks are likely to fare better under the Trump administration that intends to make financial deregulation more efficient for long-term sustainable operating profitability, market valuation, and asset growth. Fintech innovation can serve as a core moat for the U.S. financial sector's competitive advantage in the next decade.

 


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