What happens if a bank fails a stress test?
Some banks pass their stress tests with flying colors, and they go on their merry way until the next stress test. Others, however, don't do as well, and that can be a problem for the bank. If a bank is borderline passing, it may get a conditional pass, which is like a warning to the bank that it came very close to failing. These banks are encouraged to increase their reserves and are required to submit a plan of action to help them pass in the future.
If a bank fails entirely, regulations require that they cut their dividends and share buybacks to help increase capital reserves. They also must share their results with the public, including their investors and customers.