What's going on?

After the 2008 financial crisis, the US Federal Reserve (�the Fed�) began putting US banks through so-called �stress tests,� which measure banks� ability to weather another financial downturn. This year�s results were released on Wednesday � and almost all major American banks passed.

What does this mean?

Banks have to hold a certain amount of cash to allow for the fact that some of the loans they�ve made (or other investments they�ve undertaken) could lose money. When that happens, banks have to be able to repay people and businesses that have deposited money with them in some other way � which is why banks maintain a cash buffer. In these tests, the Fed assumes things like a huge economic slowdown and a doubling of the unemployment rate. If it�s judged that banks have more than enough extra cash to weather such a downturn, then they are allowed to return some of that extra cash to their shareholders in the form of a dividend or by buying back their own stock (which increases the value of the stock for the remaining shareholders).

Why should I care?

For the markets: Banks� shareholders will be getting more money back. Immediately after the results of the test were announced, some big banks, like Citigroup, announced increases to the dividend they pay investors (as well as increased stock buybacks). The banking sector has been one of the worst performing this year � and many challenges still remain. But this is a welcome, although expected, bit of good news.

The bigger picture: While US banks appear to be very safe, global investors are still concerned about European banks. That�s partly because the US economy has recovered more quickly than the European one, and also because the US acted quickly to provide their banks with more cash in the wake of the 2008 financial crisis (through a program called TARP).