The Federal Reserve's annual stress test is about to be released, and large banks may increase dividends and buy back stocks

According to the Zhitong Finance APP, the largest banks in the United States are expected to announce increased dividends and enhanced stock buybacks after the Federal Reserve releases its annual stress test results this Friday. This stress test is one of the important regulatory measures introduced after the financial crisis to assess the resilience of large systemic banks in the face of severe economic shocks. However, under the backdrop of the Trump administration's push to relax financial regulations, this test may face significant adjustments in the future.

Investors and analysts are highly focused on the stress test results, as they relate to whether large U.S. banks have the ability to maintain stable operations during economic turmoil, which are closely linked to businesses, small lenders, and even the global financial system. Analysts at Raymond James noted in a report: "We expect all the banks we cover to pass the stress tests, and all capital plans will receive approval from the Federal Reserve. Based on this, we believe bank management may push for increased capital returns."

The so-called capital plans refer to how banks arrange profit distribution, such as stock buybacks and dividend payouts, while meeting regulatory capital requirements. The results of the stress tests directly affect the capital levels banks must hold, determining how much room they have to return to shareholders.

Since the 2007-2009 financial crisis, annual stress tests have become an important tool for regulating banks. However, Wall Street has long criticized the testing system for its lack of transparency, stringent execution standards, and significant year-to-year changes, which increase compliance costs and uncertainty for banks. Regulatory officials appointed by Trump have proposed reforms to the stress tests, aiming to lower bank capital requirements, enhance testing transparency, and grant banks more operational freedom.

These reform proposals have received strong support from the banking industry but have also sparked fierce opposition from consumer protection advocates and Democratic lawmakers. They warn that lowering capital requirements will weaken the financial system's ability to withstand risks. The nonprofit organization Better Markets expressed opposition to the reform proposals in an open letter to the Federal Reserve, with the organization's bank policy director Shayna Olesiuk stating: "In this uncertain and volatile world, making banks more resilient is the core goal of stress testing." She emphasized: "Bank capital is the last line of defense against bank failures, financial crises, taxpayers footing the bill, and economic and social disasters."

The hypothetical scenarios for this test include soaring unemployment rates, prolonged declines in real estate prices, and sharp downturns in economic activity. Analysts indicate that this year's scenario settings are generally more lenient than last year's. Analysts at Truist Securities mentioned in a report: "Investors generally hope that, thanks to the relatively relaxed testing scenarios and healthier starting financial conditions, banks' stress capital buffer levels will decrease."

A total of 22 large banks are participating in this year's test, including JP Morgan (JPM.US), Wells Fargo (WFC.US), Citibank (C.US), and Bank of America (BAC.US), which are the four largest banks by asset size in the United States.

This test is also the first stress test since the appointment of the Federal Reserve's new Vice Chair for Supervision, Michael Barr. As a key figure in regulating Wall Street, Barr has long advocated for adjustments to the stress tests and has received broad support from bank executives