WASHINGTON (Reuters) – U.S. financial regulators, banks and their investors will get their first glimpse into the health of the nation’s banking system as it confronts soaring corporate and consumer defaults in the economic crisis sparked by the novel coronavirus.
FILE PHOTO: FILE PHOTO: A man wears a protective mask as he walks past the New York Stock Exchange on the corner of Wall and Broad streets during the coronavirus outbreak in New York City, New York, U.S., March 13, 2020./File Photo
And no-one, including the U.S. Federal Reserve which sets the annual bank “stress test” exams, has a clue what to expect.
“That is the $100,000 question. Actually, it’s much bigger than that and I am sure the Fed is working hard to get it right. We’re curious, and we don’t have clarity,” said Kevin Fromer, CEO of the Financial Services Forum, which represents the biggest banks in the U.S.
That could mean banks may be on the hook for billions more in capital than they had anticipated, which could ultimately force them to slash dividends, slim down their balance sheets or reduce lending.
Since the 2009 financial crisis, the Fed has tested annually a snapshot of big bank balance sheets against an extreme hypothetical economic shock. The results ultimately dictate how much capital banks can dish out to shareholders.
This year, however, the real life economic blow dealt by the pandemic has by several measures exceeded the doomsday scenario the Fed unveiled in February, leading some banks to grumble it may as well