Welcome to our exchanges Goldman Sachs markets update for Thursday July 2nd.

Each week we check them as a leader across the firm to get a quick take on what they're watching in markets.

I'm Jake Stewart, Global Head of Corporate Communications here at Goldman, and my guest today is

Richard Ramston, who runs the Financials Group in Global Investment Research

and has primary oversight of the Universal

and Large-CAP Bank sector for Goldman Sachs research.

Richard covers a lot of the big banks,

but we should note that, of course,

he doesn't cover Goldman Sachs itself.

Richard, great to have you on the program.

Jake, thank you for having me.

So late last week, Richard, the Federal Reserve announced the results of its latest

stress test of American banks.

The approach this time was a little different than previous stress tests.

What did the Fed do that was different and why?

So, you know, this is a test that's been in place now for about a decade and what they did is they made a change this year which is really being a long time coming whereby the Fed I think has tried to remove themselves a little bit from the minutia of banks setting dividends and buybacks.

So under the prior test, the way it worked is the banks would be given a scenario by the Federal Reserve that typically would reflect a period of very severe economic contraction.

The banks would take that scenario they would run it, they would figure out what they thought their losses would be under that scenario,

and based on that they would come up with a capital return ask. So they would set what they wanted to ask

for in terms of both dividends and buybacks over the next 12 months.

And the Fed would look at the results of that analysis that would run their own test and in

essence they would give the bank either a pass or a fail so the bank

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