On Friday, June 22, the US Federal Reserve said 34 of the nation’s 35 largest banks had adequate capital plans to survive a financial crisis. Of the 34 banks, however, the board issued "conditional non-objections" to the capital plans of three institutions, including Goldman Sachs and Morgan Stanley.
On June 21, US federal regulators in phone conversations told Goldman Sachs and Morgan Stanley that to fully pass the stress tests the banks needed to cut in half the combined $16 billion in shareholder payouts they had hoped to allocate, the Wall Street Journal reported on Monday, citing people familiar with the talks.
However, as part of an unprecedented deal, the Fed allowed the banks to maintain a $13 billion payout level in exchange for a "conditional non-objection" grade.
The bargain, according to the report, will also boost profitability measures that helps calculate salaries for the firms’ CEOs, the Wall Street Journal said.
The deal is the first of its kind in 8 years of stress tests, the report added, and may signal the dawn of the pro-business regulatory environment many on Wall Street have been waiting for from the Trump administration.
The US arm of Deutsche Bank (DB) was the only firm that flunked the Fed’s stress test, according to Friday’s report. The Fed said it rejected DB’s capital plan due to alleged "material weaknesses" in its planning processes and forecasting models.