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The Fed’s Increasingly Toothless Stress Tests No Longer Stress or Test the Banks; Are Cover for Wall Street’s Biggest Banks Massive Stock Buybacks

FOR IMMEDIATE RELEASE
Thursday, June 24, 2021
Contact: Doug Walker at 202-618-6430 or dwalker@bettermarkets.com

WASHINGTON, D.C.—Dennis Kelleher, Co-founder, President and Chief Executive Officer of Better Markets, released the following statement in response to the Federal Reserve’s (Fed) announcement today of the results of the 2021 stress tests:

“The Fed’s so-called stress tests no longer stress or test the banks.  After all, there is no stress in a test that every bank passes comfortably, particularly when that result is predictable because the test-giver’s (the Fed’s) massive intervention in the markets ensures the test-takers (the banks) have everything they need to ace the test.  Moreover, the Fed’s deregulatory actions over the last four years have significantly weakened what was a robust stress test regime.  That’s why today’s results of the Fed’s 2021 Dodd-Frank Act stress test (DFAST) surprised no one.  Of course, the largest banks have ample levels of capital to weather the economic downturns reflected in the Fed’s scenarios – that is the Fed’s policy objective.

“The unprecedented Fed support since last March, $4 trillion and counting, has materially helped to bolster bank balance sheets and capital levels. The 23 firms in this year’s stress test saw starting point CET1 capital ratios increase from 12.1% to 13% between DFAST 2019 and 2020, resulting in a comfortable post-stress minimum of 10.6%, thanks in large part to the Fed’s market interventions.

“Making matters worse, the stress test program has been seriously weakened under the Powell chairmanship by, among other things, the removal of two key components: the inclusion of dividend payouts and a growing balance sheet.  If those factors were included, as they should have been, the banks would have had materially lower post-stress capital ratios.

“Nevertheless, the Fed trumpeted the false comfort from these results to justify removing all of the remaining pandemic-related restrictions on the banks’ capital distributions, which will result in a flood of dividends and share buybacks likely to approach $200 billion and exceed bank earnings by as much as 167%.  This is just the latest evidence that the pandemic has been very good for banks and their shareholders, even as it has devastated millions of America’s workers, homeowners, renters, and Main Street businesses.  The Fed’s policies, priorities and stress tests need to change.”

Better Markets will release a Fact Sheet on the stress test results tomorrow, Friday, June 25th, and its lead banking policy staffers, the Director of Banking Policy, a former Fed official, as well as our Distinguished Senior Banking Adviser, the former Deputy Director of the Fed’s Division of Supervision and Regulation, will be available to answer questions.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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