Capital reserve requirements are an important tool used by the Federal Reserve to assess the balance sheet risk to the financial condition of a bank.
Since the great financial crisis, banks are now required to undergo annual stress tests to assess the credit quality and risk to their balance sheets.
The latest stress test occurred in June and the fed gave the greenlight to allowing banks to release capital to shareholders.
Schart gleefully exclaimed he would be returning over $18,000,000,000 to shareholders in the form of stock buybacks, or 10% of its market cap. "Since the COVID-19 pandemic began, we have built our financial strength ... as well as continuing to remediate our legacy issues," CEO Charlie Scharf said in a statement.
Those banks that score well on stress tests (and are deemed low risk) are rewarded by being allowed to release more capital to shareholders through paying dividends and executing stock buybacks.
Those banks that do not score well are required to build more capital reserves from earnings - this directly impacts earnings and capital releases to shareholders.
Between 2020 and 2021 there were only 6 banks out of 33 that were found whose balance sheets were MORE risky between periods.
One of them was Wells Fargo.
While most of Wells Fargo peers de-risked and cleaned up its balance sheet, boneheaded Chainsaw was too focused on tripping over pennies by laying off staff vs clearing Wells Fargo's massively risky balance sheet.
Now the chickens have come home to roost.
As of October 1 2021 Wells Fargo will now be required to reserve an additional 0.6% of capital, up from 9.0% in 2020, to 9.6% to meet the new mandated reserve requirement.
While 0.6% may not seem like a lot, you need to do the math and realize its 0.6% of $1,900,000,000,000.
Thats right - Wells Fargo is being asked to set aside over $114,000,000,000 in capital to cover potential loan losses.
Put into context - the bank makes about $20,000,000,000 per quarter.
This means Wells Fargo will need to set aside more in reserves than it makes in a year.
Let that sink in for a little while.
If you own stock in this cr@p company let this serve as a warning that you might want to diversify.
And to you greedy layoff happy executives - HA HA! You get exactly what you deserve.
BUH BYE DIVIDENDS AND STONKBUYBACKS!!
And chainsaw? You might wanna issue a notice to shareholders ASAP lest you be accused of overt securities fraud.
You can go do your own research here:
2021 -https://www.federalreserve.gov/publications/large-bank-capital-requirements-20210805.htm
2020 -
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200810a.htm