Deutsche Bank has failed the Federal Reserve’s latest stress test and Goldman Sachs and Morgan Stanley have been ordered to strengthen their balance sheets by freezing dividends and share buybacks.
The Fed gave 22 of the country’s largest listed lenders a green light for about $168bn worth of payouts over the coming year, an increase of more than a fifth from last year, according to RBC Capital Markets calculations.
However, it rejected Deutsche’s plans to transfer cash from the US subsidiary that was tested to its Frankfurt headquarters. Officials cited widespread and critical deficiencies in its capital controls and other “qualitative” weaknesses.
Goldman and Morgan Stanley, meanwhile, were required to rein in their dividend and stock buyback plans after the Fed found their initial proposals left them with inadequate capital buffers.
In the end, Goldman was given the go-ahead to hand out only $6.3bn to shareholders over the next four quarters. That was down more than a third from the $9.9bn that the Fed permitted a year ago, although the bank decided ultimately to distribute only $5.7bn over the period.
JPMorgan Chase, American Express, KeyCorp and M & T Bank Corporation got the thumbs up only after they submitted more modest plans in the past week.
Of course, the entire US banking system is poorly structured thanks to the fractional reserve system implemented under the supervision of the Federal Reserve.
When the next business cycle bust comes as a result of Federal Reserve money manipulations, there will be financial crises despite the Fed's posturing that it has everything under control with the "stress tests." #TheFedFlunks
(via The Financial Times)
And it's hard to feel sorry for these banks or their shareholders. If you lie down with dogs, you'll get fleas.
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