Not long ago, the Federal Reserve completed its stress tests on the country’s largest banks, with many firms announcing large dividend increases afterward. The Fed’s stress tests look at how capable these large financial institutions are of weathering a recession. The tests were a reaction to the Great Financial Crisis, which made it clear that bank failures could have systemic negative effects on the overall economy.
The Fed’s 2026 stress tests analyzed the effects that a severe hypothetical recession would have on 32 banks. All 32 passed the test, showing that their assets would be sufficient to cover loan losses in a severe recession. On this basis, several banks went ahead with dividend increases, as they had extra capital to distribute to shareholders.
