Big US Banks Clear Fed Stress Test, Set Stage for Higher Payouts
By Aboki Forex —
All of the biggest US banks have passed the Federal Reserve's annual stress test. This clears the way for lenders to increase buybacks and dividends.
The test checks how Wall Street banks would survive a severe economic shock. This year's exam looked at 32 large lenders. It simulated a deep global recession with a 39% drop in commercial real estate prices and a 30% fall in house prices. The unemployment rate hit 10%.
Unlike previous years, the 2026 results will not affect capital requirements. The Fed is still revising the tests to make them more bank-friendly. As a result, the Fed said banks can announce their capital plans for the third quarter of 2027 without delay.
The regulator said the banks absorbed over $708 billion in total loan losses under the hypothetical scenario. Capital declined only 1.6 percentage points in aggregate, staying above minimum requirements.
The Fed pointed to three main factors behind the results. Higher loan losses came from increased loan balances and tougher scenario variables. Lower projected unrealized gains in bank securities due to smaller hypothetical interest rate declines also pushed capital lower. On the positive side, higher interest income from recent bank performance helped capital.
Michelle Bowman, the Fed's top bank watchdog, said the results underscore the strength of the banking system.
Wall Street lenders have passed the test in recent years, allowing them to return billions of dollars to investors. JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley all boosted dividends after passing the 2025 exam.
Bankers have complained for years that the stress test criteria are arbitrary and unrealistic, forcing them to hold too much capital.