In the light of the bank stress test results announced on Thursday evening, the Fed asked banks to limit their dividend payments until 4Q20 and not to buy back shares. Banks will have to restrict the dividend distributions to those paid in the 2Q20 period. Also, by looking at the capital situation, this dividend amount can be further limited. We see that the Fed assessed increased risks in terms of banks' capital plans and asset qualities within the framework of the coronavirus pandemic conditions.
In addition to the normal stress test, the Fed conducted a sensitivity analysis to assess the resistance of large banks to the economic impact of the new type of coronavirus (Covid-19) outbreak. The Fed evaluated all U, V and W type recovery conditions in the scenario analysis, and it is stated that according to the worst W scenario (temporary recovery, then bottom again), they may experience a credit loss of 700 billion USD and some US banks are approaching the minimum capital levels. Banks will need to adopt prudence principles rather than the V-type recovery scenario, which is far from the economic realities. While Coronavirus vol. 2 dangers increase, W-type crisis conditions can be added to the scenario in addition to the U-type recovery assumptions.
Source: Tera Menkul
Hibya News Agency