"Stress Test" Passed, Wall Street Major Banks Kick Off Dividend and Buyback Feast

Large American banks have announced increases in their third-quarter dividends and the initiation of new stock repurchase plans after passing the Federal Reserve's annual stress tests.

On Tuesday, six major banks, including JPMorgan Chase, Bank of America, and Wells Fargo, successively released announcements regarding the increase in dividend distribution levels. JPMorgan Chase raised its quarterly dividend from $1.40 per share to $1.50 per share and initiated a new $50 billion stock repurchase plan.

The stress test results released by the Federal Reserve last week showed that major banks could maintain adequate capital levels even under extreme scenarios such as severe economic recession, soaring unemployment rates, and market turmoil. The Tier 1 common equity ratios of the six major banks remained in double digits, far exceeding regulatory requirements.

These measures reflect the robust performance of the banking industry in the current economic environment and will also provide shareholders with more substantial returns. The Federal Reserve is reforming the stress testing mechanism and plans to use a two-year average result to reduce the volatility of test outcomes.

Major Banks Announce Dividend Increases

As the largest bank in the United States, JPMorgan Chase's dividend increase is 7.1%, marking the second time this year that the bank has raised its dividend. CEO Jamie Dimon stated that the board's decision to increase the dividend represents a sustainable level of capital distribution, supported by strong financial performance.

Bank of America raised its dividend by 8% to $0.28 per share, Wells Fargo increased its dividend from $0.40 to $0.45, and Morgan Stanley approved a new $20 billion stock repurchase plan, planning to raise its quarterly dividend to $1.00 per share.

Goldman's dividend increase was the most significant, rising from $3.00 to $4.00, while Citigroup increased its dividend from $0.56 to $0.60. These measures were announced immediately after the banks passed the stress tests, demonstrating management's confidence in the banks' capital strength.

Stress Test Results Exceed Regulatory Expectations

The Federal Reserve's stress test results showed that banks maintained an average Tier 1 common equity ratio of 11.6%, well above the regulatory minimum requirement of 4.5%. All six major banks maintained double-digit capital ratios under the test scenarios.

The test scenarios included extreme situations such as severe economic recession, significant increases in unemployment rates, and severe fluctuations in financial markets. The banking industry was able to maintain adequate capital buffers under these stress scenarios, proving its ability to withstand risks.

Dimon stated in a statement that the stress test results demonstrate the resilience of the banking industry. The new stock repurchase plans provide banks with the ability to allocate capital to shareholders at the appropriate time.

Federal Reserve Plans to Reform Testing Mechanism

The Federal Reserve is undergoing a comprehensive reform of the implementation of stress tests. The regulatory agency proposed in April this year that future test results should use a two-year average to reduce the volatility of results.

Goldman Sachs CEO David Solomon stated that the Federal Reserve has expressed its intention to adopt more transparent and fair methods for these tests, aiming to maintain the safety and soundness of the financial system.

Last Friday, the Federal Reserve indicated that if the test results for 2025 and 2024 were averaged, banks might need to set aside more capital to meet regulatory requirements. This rule-making project is still ongoing and may impact future capital planning for banks