Banks Pass Second Stress Test

Positive Test Allows Banks to Pay Dividends and Purchase Stock

Yellen

You may have noticed your news alerts flood your feed with notifications of big banks announcing dividend hikes and share buybacks.  This is a result of all 34 banks passing the second round of the Fed stress test.  The Fed tests a bank’s capital plans to determine if it could withstand a severe economic downturn.  Once the announcement was made that all 34 banks had passed their tests, many banks released their plans to increase their dividends and/or engage in share buybacks.

Generally speaking, companies increase dividends and purchase their own shares when they are feeling confident about their company.  Once Fed stress test revealed that most banks had more than enough capital on hands to withstand the level of economic downturn modeled in the test, the all clear was given for banks to return capital to their shareholders.  Now it will be up to the buyers and sellers of the market to analyze this news

Now it will be up to the buyers and sellers of the market to analyze this news and determine where the price of bank stocks will go.

This is not a recommendation to buy or sell securities.