US banks get all-clear on resuming limit-free share buybacks after passing Fed stress tests

• The Federal Reserve plans to lift temporary restrictions on share buybacks and dividend payments for banks on June 30.
• Major US banks have enough capital to withstand over $470 billion in losses, stress tests found.
• The Fed had placed restrictions on bank payouts during the pandemic in an effort to conserve capital.

Major US banks no longer have to deal with pandemic-related restrictions on stock buybacks and dividend payments after the US Fed gave them the greenlight to return to normalcy on Thursday.

The central bank released results of its latest stress test showing that 23 of the largest banks could withstand more than $470 billion in losses under hypothetical doomsday scenarios, but they would still be left with twice as much capital as required by Fed rules.

Banks had been strictly limited by constraints on what they could pay out to investors during the coronavirus pandemic to conserve capital due to financial uncertainty throughout 2020.

But the Fed believes they now appear to have "strong capital levels" and would be able to withstand a severe recession.

"Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery," Randal Quarles, the Fed's vice chair for supervision, said in the statement.

By demonstrating their solid liquidity buffers and risk appetite, banks including Goldman Sachs, JPMorgan, Citigroup, Bank of America, and Wells Fargo will be given the all-clear to lift limits on buybacks and investor payouts on June 30.

The Fed said it expects banks to wait until Monday to analyze the stress test results before announcing shareholder payouts.

Most bank stocks cheered the Fed's stress test results. JPMorgan rose 0.9%, Morgan Stanley rose 1.2%, Wells Fargo rose 1.2%, while Goldman Sachs slipped 0.4% in Friday's pre-market trading session.

Read More: 'Microbubbles' lurk amid a favorable backdrop for stocks, 3 top Schwab strategists say - here's what to avoid and which 2 trends are set to lead the market next