Wall Street's biggest banks rose in morning trading on Monday after sailing through the U.S. Federal Reserve's annual health check, setting the stage for billions in stock buybacks and dividends.
The results are a strong sign U.S. lenders are in good shape amid heightened economic uncertainty, helping government officials and investors understand if banks can continue lending money even during a crisis.
Passing the stress test also gives banks the green light to proceed with shareholder payouts, including dividends and buybacks.
"All the participant banks passed the stress test (which was not a surprise), and this lends support to our view that they remain well positioned to return capital should they so choose," analysts at brokerage RBC Capital Markets said.
Shares of Bank of America (BAC.N) rose 0.5% in morning trading. Rivals JPMorgan Chase (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) added between 0.5% and 1.5%.
Investment bank Goldman Sachs (GS.N) was last up 2%, while Morgan Stanley (MS.N) also nudged higher.
"We view the stress test results to be a net positive and should garner increasing investor interest in the sector," analysts at Raymond James said, adding that a likely decline in stress capital buffers (SCBs) should also be seen as a positive development.
BIG WINNERS
Top brokerages said Goldman, Wells Fargo, Citigroup and M&T Bank (MTB.N) were the big winners of the exercise, citing declines in the SCBs. M&T's shares were last up 0.6%.
"Very strong result for Goldman Sachs in terms of both the result and some additional validation of the evolution of the business model under this management team," analysts at Citigroup said.
Banks did better in the 2025 stress test compared to 2024, partly because this year's test was less stringent. The test simulates an economy in crisis, so since the real economy was already a bit weaker before the test, the scenario ended up being less severe.
Bank of America analysts said expectations were high heading into this year's results and that the average year-over-year decline of 100 basis points in stress capital buffers across all participants exceeded the 30- to 50-basis-point drop most investors had expected.
The Federal Reserve rolled out its Dodd-Frank stress tests to gauge whether the biggest U.S. banks could weather a sharp economic downturn, aiming to prevent a repeat of the 2008 financial crisis.
Brokerage TD Cowen said there were no clear negative standouts as most banks broadly reported an increase in excess capital levels.
Banks have long pushed back against the exercise, arguing that it is overly complex, costly to conduct and restricts capital returns even when firms are financially sound.
The S&P 500 Banks Index (.SPXBK), which tracks large-cap banks, was last up nearly 1%. The index has outperformed the benchmark S&P 500 (.SPX) so far this year.