U.S. banks will tell shareholders on Wednesday how much they plan to pay out after the U.S. Federal Reserve unveils whether they can afford the cost and still be robust enough to weather the next crisis.
It is part of a two-step annual regulatory check-up of the health of the largest U.S. banks. Last week, the Fed said that all but one of 30 banks had passed a model run of a simulated crisis similar to 2007-09 credit meltdown.
The exercise, in which banks had to show how they would cope with a halving of the stock market, is an increasingly important benchmark for the Fed to make banks safer and have them rely less on borrowing to fund their business.
All of the banks except Zions Bancorp stayed above the five percent threshold for the top-tier capital requirement. However, that does not automatically mean that the Fed has approved their shareholder pay-outs.
In its review, the Fed assumed banks would keep dividends at current levels and not buy back shares, setting off several days of speculation about whether banks with low capital ratios would be allowed to increase dividends.
Now, the Fed will say whether it has given its blessing to the banks' actual capital return plans. The process is spread over a week to give banks a few days to adjust their plans if the Fed doesn't approve them.
Last year, regulators directed JPMorgan Chase and Goldman Sachs to redo their proposals due to concerns about their capital planning processes.
The results are of key importance for investors in a bank such as Morgan Stanley, which has been paying only a nominal dividend since the financial crisis, and has not had a meaningful stock buy-back since 2006.
Several firms appeared to disagree with the Fed's scores last week. Bank of America and Wells Fargo released results of their own tests showing that they performed better than under the Fed's tests.
European regulators plan to conduct their own stress tests later this year, following a broad review of the asset quality of banks, and just as Brussels is endowing the European Central Bank with far greater oversight powers.
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