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The Federal Reserve's 2021 Stress Test Results: All Bark and No Bite

This year's results of the Federal Reserve's Dodd-Frank Act Stress Test (DFAST) highlight the effects of the Powell chairmanship’s de-regulatory efforts on the Fed's stress testing program. The stress tests clearly no longer sufficiently stress or test the banks, providing the public a less meaningful assessment of the strength of the banking system under stress. Because the results are used as triggers for capital ejections, it is no surprise that the Fed lifted the remaining pandemic-related restrictions on dividends and share buybacks. There is no doubt that a flood of dividends and share buybacks from the largest banks will follow.

In this fact sheet, we review the de-regulatory changes that have been made to the Fed's stress testing program and the dangerous effects those changes have had on the stress tests, capital requirements, and capital planning for the largest banks. 

 

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