A practice that started because of the Great Recession has continued through the pandemic. It is the once-a-year financial checkup of the biggest banks in the country. The results are important to underpin confidence in the financial sector. For shareholders of these banks, the stress tests determine if they will be rewarded with bigger dividend payouts and stock buybacks.
Investors will learn the results of the latest tests after the closing bell Thursday in the week ahead.
Last year, all of the 19 banks tested received passing grades. Still, the Federal Reserve’s prescription was to pause buying back shares and limit dividends. After all, the COVID-19 pandemic was raging, there were no vaccines yet, and the U.S. economy had just experienced its sharpest contraction on record. Late last year, after a second round of tests, the Fed eased its limits, but still restricted dividends and share buybacks.
If the central bank drops those limitations, expect several banks to announce dividend increases before the sun goes down Thursday.
