What to expect from banks after stress tests Thursday

Big banks are on the cusp of releasing tens of billions of dollars more in stock buybacks and dividends to investors, according to analysts.

Results from the Federal Reserve‘s bank stress tests are scheduled to be released Thursday after the close of regular trading. The annual ritual, which tests how banks fare during various hypothetical economic downturns, has typically been followed by statements from banks saying how much capital they can release in the form of dividends and buybacks.

Banks are planning to disclose their capital return plans on Monday afternoon, according to people with knowledge of the matter at five of the biggest U.S. lenders. That gives institutions a few days to adjust their plans after receiving the regulator’s results, said two of the people.

Thanks in part to massive support from the Fed last year, U.S. banks have fared far better than feared at the start of the global pandemic. The industry built its biggest loan loss reserves since the 2008 financial crisis, but most of those losses didn’t actually happen. Banks were also forced to suspend buybacks and freeze dividends, moves that allowed them to stockpile larger capital cushions.

It’s against that backdrop that most or all banks taking the exam are expected to pass, according to Kyle Sanders and Jim Shanahan, bank analysts at Edward Jones.