EDITOR NOTE: Following a second round of stress tests in December, the Federal Reserve has decided not to increase banks’ capital buffers for the moment. But banks are worried that such buffers will be imposed in the first quarter of 2021. You remember the loan loss provisions following the fallout of the first lockdown back in March. Well, pandemic cases are hitting record highs; a second lockdown is already underway in several cities; and the aftermath of these actions compounded on the outcomes of first make the potential damages incalculable. Banks are facing far greater risks than most depositors realize. Liquidity may be a concerning issue now, but given the multitude of negative variables we’re facing and still about to face, not every bank will have the capacity to remain liquid or solvent should the economy reach a given breaking point.
The US Federal Reserve will not reset US banks’ stress capital buffers following the latest stress test results “at this time”, according to a senior Fed official, but banks fear the possibility of increases in the first quarter of 2021. The Fed published the results of its second stress test of the US banking system on 18 December, and chose to keep each bank’s stress capital buffer (SCB) unchanged at the level set on October 1, 2020. But it also announced it was extending the window in which
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