The Fed’s ‘Harsh’ Stress Tests Hit Bank Stocks

The Fed’s ‘Harsh’ Stress Tests Hit Bank Stocks

DealBook Newsletter

The Fed gave banks gifts and burdens yesterday.Credit...Patrick Semansky/Associated Press

June 26, 2020Updated 7:43 a.m. ET

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The Fed's give and take

It was a day of ups and downs for big American banks, with a lucrative rollback of regulations announced in the morning balanced out by new restrictions on shareholder payouts imposed in the afternoon.

Goldman Sachs's stock price tells the story. Shortly after the market opened, the Fed and other regulators announced that parts of the so-called Volcker Rule would be relaxed, letting banks invest more freely in hedge funds, private equity and venture capital. Shares in banks like Goldman jumped on the news.

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Banks dragged the market higher, buoyed by the deregulatory move. The F.D.I.C. chairwoman, Jelena McWilliams, called the Volcker Rule, a crucial piece of post-financial crisis legislation, "inefficient“ and "overly restrictive“ in a statement. Fellow regulators issued similar proclamations, while Democratic members of the agencies dissented (but were outvoted). Bank shares climbed to session highs at the close.

Then the Fed spoiled the party. At 4:30 p.m. Eastern, the Fed released the results of stress tests of the country's largest lenders, assessing their capital cushions under various dire possibilities, including a