Some of the banks that learned their stress-test results this week are set to start revealing their latest capital return plans on Friday afternoon.
That group includes regional banks, which generally recorded lower capital levels under the Federal Reserve's severely stressed scenario than their big bank counterparts.
While the stress test results provided insight into regulators' view on bank resilience, the capital return plans will offer a look at how banks, after receiving input from their regulators, see their own capital levels. Many regional banks stopped or curtailed their planned capital returns, including share buybacks, in recent years and have yet to fully resume them.
"Banks are likely going to be told to keep the same cadence — no faster and no stronger," said Chris Marinac, director of research at Janney Montgomery Scott, a financial services investment firm.
Regional banks had
Several regional banks saw notable declines in their capital levels under the severely adverse scenario.
Citizens Financial Group in Providence, Rhode Island, showed a post-stress common equity tier 1 capital ratio of 6.4%, down from 6.9% in last year's stress tests but still above the regulatory minimum of 4.5%.
U.S. Bancorp in Minneapolis posted a capital ratio of 6.6%, down from 9.3% last year. Truist Financial's post-stress common equity tier 1 ratio was 6.7%, compared with 7.8% a year ago.
"On their own, the results are relieving," analysts from Jefferies Group said in a note. But they added that
Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., said in a speech last week that
The biggest U.S. banks typically have higher capital ratios than regional banks — in part because their classification as globally systemically important banks requires them to carry additional capital, Marinac said. Capital ratios at regional banks remain above the minimum requirements, even though those banks have felt a more acute impact from unrealized security losses than larger banks have.
Still, capital levels at regional banks are "just not as high as investors want them to be," Marinac said.
Nonetheless, the overall performance of banks in this year's stress tests was strong, the central bank said. The aggregate maximum decline in the common equity tier 1 ratio was 2.3 percentage points in the severely stressed scenario — smaller than the 2022 maximum decline of 2.7 percentage points. That decrease is likely to result in slightly lower capital requirements for tested banks, said Francisco Covas, head of research for the Bank Policy Institute, said in a statement.
"Recognizing this year's scenario was the most difficult on record, these outcomes are the best antidote to any lingering anxiety surrounding recent bank failures," Covas said.
The Federal Reserve conducts annual stress tests to determine how well banks would cope with negative changes in the economic environment while continuing to lend.
Michael Barr, the Fed's vice chairman for supervision, is
