Prudent Measures Taken By The Federal Reserve Bank To Preserve Capital

Fed Caps Bank Dividends, Bans Buybacks Through September

By Yalman Onaran and Jesse Hamilton    

‎June‎ ‎25‎, ‎2020‎ ‎1‎:‎30‎ ‎PM Updated on ‎June‎ ‎25‎, ‎2020‎ ‎2‎:‎48‎ ‎PM

> A new sensitivity analysis the Fed used to gauge the impact of the pandemic sought to capture how financial firms are positioned to handle financial pressure caused by the pandemic. Those results were only released in aggregate form, showing how all the 34 banks being tested would fare under more severe scenarios.

> In the past, the nation’s largest banks would disclose their buyback and dividend targets for the next 12 months within minutes of the Fed’s announcement of stress test results.

But this time, policy makers asked them not to release capital-distribution plans until Monday

One Take-Away: More Signals of Uncertainty

(Alison Williams, an analyst at Bloomberg Intelligence)

Representatives of Goldman Sachs and Morgan Stanley declined to comment on the stress tests, and Wells Fargo said it had no immediate comment.
The central bank is also requiring banks to re-submit capital plans later in the year, a move unprecedented in the past decade of Fed testing. Quarles said the board “will use this information to make a further assessment of the banks’ financial conditions and risks.”
READ MORE > https://www.bloomberg.com/news/articles/2020-06-25

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More from Bloomberg

Banks Get Easier Volcker Rule and $40 Billion Break on Swaps

By Jesse Hamilton    

‎June‎ ‎25‎, ‎2020‎ ‎7‎:‎00‎ ‎AM Updated on ‎June‎ ‎25‎, ‎2020‎ ‎1‎:‎56‎ ‎PM

                                         

U.S. bank regulators approve overhauls of post-crisis rules                            

Changes add to Wall Street wins during Trump administration

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BLOGGER NOTE: Image insert is for personal reaction to this announcement

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"Wall Street banks will soon be able to boost investments in venture capital funds and pocket billions of dollars they’ve had to set aside to backstop derivatives trades as U.S. regulators continue their push to roll back post-crisis constraints.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. approved changes to the Volcker Rule Thursday that let banks increase their dealings with certain funds by providing more clarity on what’s allowed.

The regulators also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates

The revisions will complete what watchdogs appointed by President Donald Trump have referred to as Volcker 2.0 -- a softening of one of the most controversial regulations included in the 2010 Dodd-Frank Act.

Last year, the Fed, FDIC, OCC and other agencies eased the better-known aspect of Volcker that restricts lenders from engaging in proprietary trading -- the practice of making market bets for themselves instead of on behalf of clients.

Thursday’s separate reversal of the interaffiliate margin requirement for swaps trades could free up an estimated $40 billion for Wall Street banks, though regulators added a new threshold that limits the scale of margin that can be forgiven.

 

2 Key Details [there are more Key Details outlined in the article ]

• In scrapping the requirement that banks post margin for trades between affiliates, regulators did add a new threshold to prevent banks from abusing the relief: If a firm operating under the old rule would have had to set aside initial margin exceeding more than 15% of its so-called “Tier 1” capital, then it still has to set aside margin that surpasses that amount. The demand, which is meant to boost the safety and soundness of the new approach, will force banks to continue calculating on a daily basis what their margin requirements would have been under the rule that’s been eliminated.
• The FDIC’s Gruenberg opposed the change to swaps rules, arguing that it removes a critical protection for banks. Fed Governor Lael Brainard reiterated that concern, saying in a statement that she dissented from the Fed’s approval because she fears the deregulatory move “could again leave banks exposed to the buildup of risky derivatives.”

Source: https://www.bloomberg.com/news/articles/2020-06-25