JPMorgan leads as major U.S. banks spark a dividend surge after passing stress tests.

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After passing the Federal Reserve's annual stress test, major U.S. banks have collectively raised dividends and launched buybacks, returning large amounts of capital to shareholders and continuing the increasingly proactive dividend trend in recent years amid looser regulations.

On June 25, according to Bloomberg, after the results of the Fed's annual assessment were released, the largest U.S. lender, JPMorgan Chase, raised its quarterly dividend from $1.50 to $1.65 per share and approved a new $50 billion share buyback plan effective July 1. Goldman Sachs raised its quarterly dividend from $4.50 to $5. Wells Fargo increased its dividend from 45 cents to 50 cents. Morgan Stanley from $1 to $1.15, and Citigroup will raise its dividend from 60 cents to 67 cents per share upon board approval.

The collective increase in dividends comes as the Fed's stress test results this year will not affect banks' capital requirements — in February, the Fed voted to freeze the current stress capital buffer requirements until 2027, while continuing to revise the annual test to make it more favorable to banks. This gives banks greater flexibility in their capital return arrangements.

Stress Tests Becoming Looser, More Room for Capital Returns

JPMorgan Chase's quarterly dividend increased by about 10%, and the $50 billion buyback plan effective July 1 reflects its strong confidence in capital strength. Goldman Sachs' dividend rose by about 11%. Morgan Stanley's increased by about 15%, and it reauthorized a $20 billion long-term buyback plan. Wells Fargo's dividend went up about 11%. Citigroup's dividend rose about 12%, pending final board approval.

Bank of America said it will announce its next quarter dividend plan after the July board meeting; as of the end of March, it still has nearly $23 billion in unused buyback authorization. CEO Brian Moynihan said in a statement, "Today's results show that Bank of America has strong capital strength and will continue to invest in the company, while supporting clients and ongoing economic growth."

This wave of dividend distribution is firmly supported by strong earnings. According to Bloomberg, the six largest U.S. banks paid out more than $140 billion in dividends and buybacks last year, surpassing the historical record set in 2019. At the same time, helped by record-high trading income, the combined profit of the six biggest banks reached the highest level since 2021.

Analysts point out that the combination of strong earnings performance and a looser regulatory environment provides dual support for this round of large-scale capital returns.

The Fed's stress tests, established as part of the regulatory framework after the 2008 financial crisis, are designed to assess whether banks can maintain sufficient capital under hypothetical recession scenarios. The test results typically determine the extent to which banks can return capital to shareholders through dividends and share buybacks.

However, in recent years, the binding force of these tests has markedly weakened. In February this year, the Fed announced that the current stress capital buffer requirements would be frozen until 2027, and the overall annual test would continue to be revised to be more favorable to banks. Last year, as the tests became less strict, the capital requirements for many banks decreased.

The Fed stated that, as the test results this year do not affect capital requirements, "institutions are not expected to have to delay public disclosures of their capital action plans through the third quarter of 2027 to a specific time," further opening a window for banks to announce dividend and buyback plans in advance.

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