A practice that began due to the Great Recession has continued throughout the pandemic. It is the annual financial check of the largest banks in the country. The results are important in building confidence in the financial sector. For shareholders in these banks, the stress tests determine whether they will be rewarded with higher dividend distributions and share buybacks.
Investors will hear the results of the latest tests after the closing bell on Thursday next week.
Last year all 19 bank tests were passed. Still, the Federal Reserve’s recipe was to suspend stock buybacks and cap dividends. After all, the COVID-19 pandemic was raging, there were still no vaccines, and the U.S. economy had just experienced its biggest decline on record. At the end of last year, the Fed eased its limits after a second round of testing, but still restricted dividends and share buybacks.
If the central bank lifts these restrictions, expect several banks to announce dividend increases before the sun goes down on Thursday.
This review of the financial resilience of the largest banks comes as the banks become inundated with money. Jamie Dimon, CEO of JPMorgan Chase, said his bank had $ 500 billion in cash on hand. He’s waiting for interest rates to rise before putting that money into the economy. And he expects inflation to be “more than temporary,” he said at a commercial real estate conference last week.
For those banks that get solid financial health on Thursday, pressure will mount on them to return some of their cash to shareholders. Stocks of big banks like JPMorgan Chase, Bank of America and Wells Fargo have outperformed the S&P 500 so far this year. Investors rely on a healthy check-up.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co., says his bank has $ 500 billion in cash on hand.
Financial journalist Tom Hudson is hosting “The Sunshine Economy” on WLRN-FM in Miami, where he is vice president of news. He is a former co-presenter and editor-in-chief of the “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.