During Federal Reserve health checks this week, major US lenders are supposed to show that they have enough capital to withstand any new banking sector upheaval, although analysts predict that investor payouts will likely somewhat decline as a result.

The central bank will announce the findings of its bank "stress tests" on Wednesday, which determine how much fund banks would require to weather a catastrophic economic slump.

The yearly exercise, which was instituted in the wake of the financial crisis that lasted from 2007 to 2009, is essential to banks' capital strategy since it determines how much money they can give back to shareholders in the form of dividends and buybacks of shares

Following the failure of Silicon Valley Bank as well as two other banks during this year's banking crisis, the 2023 tests will be conducted. Since they suffered significant unrealized losses of their holdings of US Treasury bonds as a result of the Fed's interest rate increases, uninsured depositors were alarmed.

Citigroup Inc., Bank of America, JPMorgan Chase, Goldman Sachs Group, Wells Fargo, and Morgan Stanley are among the Wall Street lenders that typically garner the most attention. Smaller lenders like Capital One, US Bancorp, and Citizens will certainly be under the spotlight as well, though, given the persistent investor anxiety around the industry.

The 23 lenders being examined are expected to have capital levels above the required minimums despite the unrest and the exam being the toughest in recent memory, according to bank executives and analysts.

The 2023 Fed Stress Test subjects banks to everything under the sun and enables them to demonstrate that the biggest banks are capable of passing one of the harshest examinations yet, according to a Thursday report by Wells Fargo analysts.

Banks should generally have additional capital to distribute to shareholders, though perhaps at a slower rate than in previous years, and dividends must be secure.