On Sept. 17, US Eastern time, the Fed released two hypothetical scenarios for a second round of stress tests on large banks in 2020, which will examine the health of banks' balance sheets, Zhitong Financial APP has learned. It will be the first time in a year that the Fed has conducted two rounds of stress tests on banks. More importantly, the Fed said it was considering extending restrictions on dividend payments and share buybacks for Bank of America into the fourth quarter.

The Fed said it would decide by the end of September whether to extend restrictions that were scheduled to expire on Sept. 30. Of course, banks may be disappointed if the restrictions are extended until the end of the year, as JPMorgan Chase has said it could resume share buybacks in the fourth quarter if regulators allow it.

In June, under pressure from members of Congress that banks should not pay dividends during public health events, the Fed released the results of its first stress test, which showed that all large banks were well capitalised, but given increased economic uncertainty, the Fed asked banks to take a number of actions in the third quarter of this year to maintain their capital levels.

The Fed also said that as part of the second round of stress tests, large banks would be tested under two hypothetical scenarios characterized by severe recessions to assess their resilience under a series of results. Stress tests will help ensure that "even in a severe recession, large banks can lend to households and businesses."

"the Fed's stress tests earlier this year showed the strength of large banks in many different situations," said Fed Vice Chairman Randal K. Quarles. "despite a substantial improvement in the economy in the last quarter, uncertainty remains unusually high in the coming quarters, and these two additional tests will provide more information about the resilience of large banks."

The second round of tests will assess the resilience of large banks by assessing loan losses and capital levels in a hypothetical recession over the next nine quarters. Both scenarios assume that the global economy is in a severe recession and that financial markets are under tremendous pressure.

In the first scenario, the unemployment rate peaked at 12.5% at the end of 2021 and then fell to around 7.5%. From the third quarter of 2020 to the fourth quarter of 2021, US gross domestic product fell by about 3 per cent. Under such circumstances, the overseas economy will also slow sharply.

In the second scenario, the unemployment rate peaked at 11 per cent at the end of 2020 and remained high for quite a long time, eventually falling to 9 per cent.

Both scenarios also include a global market shock. The Fed will test banks with large trading operations to prevent "unexpected and sudden" defaults by their biggest counterparties.