How the Fed Keeps Bank Stocks Down

Bank shares are being held back by uncertainty over how the Fed’s stress tests would affect dividends and buybacks

Bank profits are doing great; bank stocks, not so much. One big reason is uncertainty over future dividends and buybacks.

This is ultimately in the hands of the Federal Reserve. The central bank determines how much large banks are allowed to pay out to shareholders—from July through the following June every year—through its annual stress tests. This year, bankers are warning that the tests will be particularly tough.

As...