So most of the 34 major US banks passed the Federal Reserve’s open-book, take-home stress test.
However there is an asterisk. Capital One has too much questionable credit card debt and needs to submit a new plan by year-end. Deutsche Bank and Santander did not take the stress test because the banks are still reorganizing operations under the Fed’s purview and could not handle the test without going into cardiac arrest.
While no one knows what the parameters were for this test as far as capital levels and needed reserves, I assume the bar required to pass was a bit lower than last year’s test due to all the banks passing for the first time since the financial crisis of 2008-2009.
However we will not know what the parameters were for passing.
We did see what these banker’s are doing with the new-found freedom as all the banks announced dividend raises and stock buybacks. The amount of capital being deployed to shareholders could reach $30B, according to some estimates.
However the account holders in these banks will not see any additional interest on their savings as a result of the great news coming out of the stress test.
While the cash being deployed to shareholders is on a different balance sheet line than the interest paid line, I’m sure some of this largess could be used to raise interest paid by 0.25% and benefit the consumers that have been hobbled for 10 years with near zero interest paid to savers.
But that will not happen because the Fed cannot control bank interest paid cash, which could be saved or used to pay down debt and not put back into the stock market to help inflate that asset bubble like dividends and stock buybacks.