The Federal Reserve announced that it will conduct a second round of stress tests this year and plans to extend the limit on bank dividend repurchases.

On September 17, local time, the Federal Reserve released two hypothetical scenarios for the second round of stress tests on large banks in 2020. This will be the first time that the Federal Reserve conducts two rounds of stress tests on banks within one year. The Fed also said it was considering extending restrictions on dividend payments and stock buybacks for U.S. banks into the fourth quarter.

As part of the second round of stress testing, large U.S. banks (including foreign banks in the U.S.) will be tested under two hypothetical scenarios with severe recession characteristics to evaluate the performance of large banks in the next nine quarters. Loan losses and capital levels under hypothetical recession scenarios. The regulator plans to publish the results of the stress test no later than the end of 2020, but has not disclosed whether the results will affect the industry's capital needs.

In the first scenario, the unemployment rate peaks at 12.5% ??at the end of 2021 and then drops to around 7.5%. From the third quarter of 2020 to the fourth quarter of 2021, U.S. gross domestic product fell by about 3%. In this case, the overseas economy will also slow down significantly; in the second scenario, the unemployment rate peaks at 11% at the end of 2020 and remains high for a long time, only falling to 9% in the end. Both scenarios include a shock to global markets. The Fed will test banks with large trading operations to guard against "unexpected and sudden defaults" by their largest counterparties.

The results of the first round of bank stress tests announced by the Federal Reserve on June 25 showed that the COVID-19 epidemic has had varying degrees of impact on large banks, and a few banks may face the potential risk of insufficient capital. Therefore, the Federal Reserve requires large banks to take measures Actions such as suspending share buybacks and limiting dividend payments in the third quarter ensured its capital adequacy.

The Federal Reserve began conducting stress tests on large financial institutions in 2009 to ensure that large financial institutions still have sufficient capital to maintain operations when facing adverse conditions such as economic recession.

Proofreading: Ding Xiao