Bank stress tests have come round again – and almost all banks are fine.
Is this a surprise? What actually goes on in a stress test? Well basically, the FED pitches banks against hypothetical economic scenarios, seeing whether they’d stand up to them – which is really testing whether they have a sufficient cushion of capital in the case of “deep global recession”. So stress tests are an attempt to safeguard against another 2008 scenario. But now, a few years on from the crisis, the tests are more being used as a gateway for bank payouts. Of the 18 tested, only one failed – (Ally), and for the 17 that passed the tests will pave the way for increased dividends and share buybacks.
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