Last month, the US Federal Reserve Bank conducted its annual bank stress test (an analysis carried out to determine whether a bank has enough capital to endure an economic downturn and manage risk) and gave passing grades to all 33 of the country’s biggest banks after it gauged each lender’s ability to weather a severe economic downturn.
As we are aware, banks are important financial institutions that support the movement of money from the surplus side to the deficit side within an economy, through various forms of loans given to individuals and businesses.
Therefore, it is important that monetary authorities conduct these analyses to ascertain if a bank has enough capital to withstand a deep recession or a financial market crash (negative economic shock).
This year, in a series of tougher measures than the ones stipulated for the banks last year, the Fed drafted that the 33 banks will record losses up to $612bn, and their group’s capital ratios will decline to 9.7%. The stimulated shocks ensured banks maintained more than double the minimum requirement for capital ratios and losses the banks can take.
Our portfolio companies in the banking sector such as US Bancorp, and JP Morgan had to show that they maintained capital ratios above the government-mandated minimums after enduring the test scenarios outlined by the Fed in a testament to their strong financial health.
Meanwhile, in general, what this means is that banks will be able to power the US economy back to life in the case of a recession and that our portfolio companies in the banking sector will continue to deliver growth in the future.
You can be sure that as your investment managers, we will be keeping you informed about the latest economic happenings as it relates to your investments with Rise. Also know that in this period of record inflation and mounting economic pressures, we are taking advantage of various attractive buy-in positions and ensuring we grow your money for you.