Banks clear Fed’s doomsday stress test, but investors await word on their payouts

Banks have cleared the Federal Reserve’s latest test of their ability to withstand another economic doomsday, but the real test for investors comes next week, when the banks reveal how much they are able to pay out in dividends and share buybacks.

Test results made public on Thursday by the Fed show that large and regional U.S. banks have enough capital to withstand the crisis scenarios used in the test.

This year 38 banks went through the ringer, though three banks ended up being exempted because of a new law that set a minimum size of $100 billion of assets for those required to participate.

It is the fourth straight year all the banks met the Fed’s standards. That helped bolster arguments from Republican lawmakers that regulations on the industry could be loosened without adverse effects.

The test is not “pass/fail,” but coming through the worst-case scenario is seen as a positive. “Despite a tough scenario and other factors that affected this year’s test, the capital levels of the firms after the hypothetical severe global recession are higher than the actual capital levels of large banks in the years leading up to the most recent recession,” said Fed Vice Chairman Randal K. Quarles in a statement.

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