After the excitement of Fed testimony before Congress, the previous week, it was a fairly quiet time last week for Fed watchers in terms of the standard weekly speechifying.

Still, the Fed is the Fed and there’s a reason they say not to fight it. The Federal Reserve came out with its annual and eagerly awaited stress tests Thursday. And while the health of the nation’s banking system passed muster with the Fed’s oracles, the central bank managed to drop the bank stops.

That’s easy when you say, among other things, that you are asking banks to cap their dividends. In a nutshell, the Fed said the country’s big banks are healthy enough to survive the coronavirus-induced recession but could suffer 2008-style losses if the economy languishes. Automatically, I’m wondering what was the purpose of all the post 2008 regulations then? Let’s move on.

The Fed also said the central bank could take additional steps to restrict buybacks or dividends ‘if the circumstances warrant.’ Now you know why the bank stocks took a bath.

The Fed warned a prolonged economic downturn could saddle them with hundreds of billions of dollars in losses on soured loans. That’s clear enough. It put the worst-case scenario, with a prolonged recession and unemployment, at as much as $...

Unlock this article with a FREE 30-Day Trial!

An FSI Pro, or FSI Macro subscription is required in order to access this content.

*Free trial available only on a monthly plan

Disclosures (show)

Get invaluable analysis of the market and stocks. Cancel at any time. Start Free Trial

Articles Read 2/2

🎁 Unlock 1 extra article by joining our Community!

You’ve reached your limit of 2 free monthly articles. Please enter your email to unlock 1 more articles.

Already have an account? Sign In

Want to receive Regular Market Updates to your Inbox?

I am your default error :)