The Fed said banks could buy shares again. JPMorgan and Goldman Sachs are growing.

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The latest results of the Federal Reserve’s stress tests have disappeared and, if the stock market is an indication, it seems that many large banks have passed.

Starting next month, the central bank will allow banks to buy a certain amount of shares based on their income from the previous year. This is a change from this year: in March, eight large banks stopped their share buyback programs because of the coronavirus. In June, the Fed asked banks to stop repurchases and capped dividends based on recent revenues.

Several large banks have already responded to the Fed’s decision, announcing redemptions that will begin in the first quarter of 2021. In a statement after the Fed’s announcement,

JP Morgan

Chase said his board has approved a new $ 30 billion share buyback program.

Goldman Sachs

said it intends to resume its share repurchase program in the next quarter.

The Fed’s move was a welcome one, but somewhat surprising. Although the Fed frequently supported the strength of the financial sector, it was expected that redemptions would be allowed to resume only when the economy was on a firmer footing. The increase in coronavirus cases and the economic constraints they have caused have led many to believe that redemptions will be allowed in the second half of next year.

This was the second round of stress tests the major banks underwent. Overall, banks performed well in June, but given the unprecedented nature of the pandemic, the Fed wanted to test them again. The most recent round of tests involved high unemployment and an economy that had to recover for several quarters. Even when the test scenarios were announced, the Fed admitted that the scenarios were “significantly more severe than most current baseline projections for the US economy.”

The bank’s shares gained in trading after hours after the announcement. Around 6pm, New York time

SPDR Sector Selective Financial Fund

(XLF) rose 3.3%, JPMorgan shares rose 5%, Goldman Sachs shares rose 5.1%, and

Bank of America

increased by 4.7%.

Write to Alexandra Scaggs at [email protected]