Bank Stocks Jump After Group Sails Through Fed Stress Tests

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Bank Stocks Jump After Group Sails Through Fed Stress Tests
Credit: © Reuters.

By Liz Moyer

Investing.com -- Big bank stocks jumped on Friday, leading the broad index higher after passing the Federal Reserve's latest stress tests.

The KBW Bank of large banks rose 4% in afternoon trading.

The Fed tested the banks' capital levels to see how well they would withstand a set of hypothetical but extreme market conditions. The tests started after the 2008-2009 financial crisis. This year's test scenario included an increase in unemployment to 10%, a 28% drop in housing prices, a 55% drop in equities, an increase in market volatility and a deterioration in commercial real estate. All 34 banks passed with enough of a capital cushion to absorb the hypothetical shocks, which would lead to a hypothetical combined $612 billion in losses.

Wells Fargo & Company (NYSE: WFC ) shares rose 7% on Friday, JPMorgan Chase & Co (NYSE: JPM ) rose 2.7%, and Goldman Sachs Group Inc (NYSE: GS ) rose 5.5%. Morgan Stanley (NYSE: MS ) rose 5%.

Passing the tests frees the banks to make plans to return money to shareholders in the form of dividend payments and stock buybacks, and the group is set to announce its plans for that in the next few days. The Fed barred share buybacks and limited dividends in mid-2020 to shore up bank capital to withstand the pandemic. Those restrictions lifted last year. 

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