WASHINGTON – The nation’s largest banks must undergo new stress tests to show they can weather another recession, and the Federal Reserve said those that pass them can boost dividends paid to investors.

Banks would need to show the Fed’s bank examiners that they’re in good financial health and that they have adequate capital to absorb potential losses over the next two years.

The Fed oversees Wall Street’s biggest banks, including Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo.

Banks have to file plans with the Fed showing that they would have sufficient capital cushions to cover any losses under different economic scenarios — including if the economy were to fall back into a recession, Fed officials said.

All of the 19 largest banks overseen by the Fed must file the plans, even if they don’t intend to increase their dividend payments. The plans must be filed by Jan. 7, 2011.

Banks that don’t pass the stress tests will have to take steps to raise new capital to build up their cushions.

 

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