US banking system suffers losses of $ 700 billion: Federal Reserve suspended buybacks of their own stock
The coronavirus pandemic and riots undermine the US economy, and the banking system in particular. According to the Fed, stress tests showed that more than 30 of the largest banks lost a total of more than $ 700 billion, so the Federal Reserve System ordered banks to stop buying back their own stocks and to cap dividend payouts by the end of September.
“In aggregate, loan losses for the 34 banks ranged from $560 billion to $700 billion in the sensitivity analysis and aggregate capital ratios declined from 12.0 percent in the fourth quarter of 2019 to between 9.5 percent and 7.7 percent under the hypothetical downside scenarios. Under the U- and W-shaped scenarios, most firms remain well capitalized but several would approach minimum capital levels. The sensitivity analysis does not incorporate the potential effects of government stimulus payments and expanded unemployment insurance,” according to the Federal Reserve Board.
The rapid recession of the US economy will continue to worsen in connection with the second wave of the coronavirus pandemic. Another major contributing factor will be the repeated wave of unemployment, which at the peak of the viral pandemic showed almost 20 percent.
“The Fed’s worst case scenario, a double-dip recession, would have caused roughly a quarter of all the biggest banks to breach their minimum capital requirements. This scenario would show the U.S. economy contracting by 37.5% on an annualized basis and starting to recover through the summer, but a second outbreak of infections would cause the U.S. economy to slip back into recession,” reports AP. “The U.S. economy would contract 31.5% on an annualized basis, only to recover through 2020 and 2021.”
But even despite such significant losses in personal banking capital, all affected banks will not stop working.
"The banking system has been a source of strength during this crisis," Vice Chair Randal K. Quarles said, "and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks."
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