By Dhirendra Tripathi
Investing.com – Bank stocks were mostly higher in Friday’s premarket trading after passing the Federal Reserve’s latest stress test, a move that unlocks billions of dollars earmarked for buybacks and dividends.
Morgan Stanley (NYSE:MS) stock , Citigroup (NYSE:C) stock, JPMorgan (NYSE:JPM) stock and Bank of America (NYSE:BAC) stock were all up 0.5%-0.7%. Lender Wells Fargo (NYSE:WFC) rose 1.5%.
The central bank said that large banks continue to have strong capital levels and could continue lending to households and businesses during a severe recession.
"Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery," said Vice Chair for Supervision Randal Quarles.
All 23 large banks tested remained well above their risk-based minimum capital requirements and as laid out previously by the Board, the additional restrictions put in place during the COVID event will end, a note from the Fed said.
The Board's stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their losses, revenue, and capital levels—which provide a cushion against losses—under hypothetical scenarios over nine future quarters.