Real Stress Hurts Bank Buybacks More Than Fed’s Test

Jerome Powell is putting big US banks through two stress tests. The Federal Reserve chair’s merciless interest-rate increases are hitting asset values hard, and that’s likely to prove painful in second-quarter earnings and beyond. Share buybacks by most big banks are already slower this year than last as they cope with billions of losses on government bonds they own and potentially on debt deals underwritten for clients.

Meanwhile, the just-published results of the Fed’s theoretical crisis exams showed big banks have plenty of capital to survive a severe shock. It ran tougher scenarios than last year, including a bigger rise in unemployment and drop in home prices. At the same time, the Fed has already told JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. to build in bigger cushions next year to guard against the systemic risks they present.