By Colin Barr
March 18, 2011

Big bank stocks took off after the Fed gave the nod to some long-awaited dividend hikes.

JPMorgan Chase (jpm) was the first out of the gate, boosting its quarterly payout to a quarter from a nickel and setting up a $15 billion stock buyback plan to boot. Wells Fargo (wfc) and U.S. Bancorp (usb) quickly followed suit. Shares of all three rose 3% or so.

The rally came after the Federal Reserve said Friday it completed its latest stress tests of the 19 biggest U.S. lenders.

The idea was to make sure that all the banks have enough capital on hand to deal with another shock to the economy or the financial markets, which is seeming like a pretty good call given the stunning developments (riots, oil spike, earthquake, nuclear crisis) of the past month.

In a break from how it handled the last stress test, the Fed didn’t disclose the findings of the Comprehensive Capital Analysis and Review, or CCAR. But it said it will be letting the banks know how they fared.

We are learning who aced the test by seeing who announces increased dividend payments. As the Fed said:

As a result of the CCAR, some firms are expected to increase or restart dividend payments, buy back shares, or repay government capital. The Federal Reserve on Friday will discuss the reviews and its decisions with firms that requested a capital action. All 19 firms will receive more detailed assessments of their capital planning processes next month.

Bank of America (bac) is a bank worth watching here. It has been posturing to the effect that it is going to raise its dividend too — even though there is considerable doubt about the health of its mortgage book. Presumably it will be among the banks getting middling marks on the test and being told to study harder and buckle down next time.

The Fed’s statement even makes allowances for those who don’t quite make the dividend grade:

It is important to note that there are a number of reasons why firms participating in the CCAR may not be making capital distributions this quarter. For example, a firm may not have requested approval of any such action, Federal Reserve supervisors may have believed a requested distribution was too high at this time and could weaken the firm’s ability to weather adverse economic conditions, or supervisors may not have been comfortable with the capital planning process underlying the request. Firms may resubmit capital proposals each quarter, with their prospects for an answer of no objection dependent on their responses to any concerns raised during the CCAR.

So no one should get their feelings hurt if they can’t raise the dividend just yet. And if BofA does come out hiking? Well, that will afford us yet another chance to scratch our heads and wonder just what the point of bank regulators actually is.

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