Just caught up on something interesting from the Fed's latest stress testing results that's worth paying attention to if you follow the banking sector.

So all 23 banks passed the Fed's annual stress test, which is basically the Fed's way of simulating a really bad economic scenario to see if banks can actually hold up. They stress test the big players to make sure the system stays solid and that banks can keep lending even when things get rough. This year, only six super-regional banks had to participate, and the results show some pretty clear winners and losers.

Here's what caught my eye: the Fed uses something called a stress capital buffer (SCB) to determine how much capital banks need to keep on hand. The lower your SCB, the more flexibility you have for dividends and buybacks. The higher it is, well, you're more restricted.

PNC Financial Services came out looking the strongest. Their SCB came in at just 1.2% excluding dividends, which is a major drop from their current 2.9%. That's significant because it suggests they could potentially lower their capital requirements. The Fed modeled a scenario where unemployment hits 10% and commercial real estate prices crater by 40%, and PNC's projected loan loss rate was only 5.5%—pretty solid.

On the flip side, Citizens Financial Group had the toughest time. Their new SCB is 3.6%, which is actually higher than their current 3.4%. The Fed modeled a 7.1% loan loss rate for them in that same adverse scenario, so they're looking at tighter capital requirements going forward.

M&T Bank and U.S. Bancorp also performed reasonably well. Truist, BMO, and Citizens are probably looking at similar or slightly higher SCBs compared to where they are now.

The thing is, other regulatory capital changes are expected later this year specifically for super-regional banks, so most of them are probably in wait-and-see mode right now when it comes to dividends and share buybacks. But based on this latest round of testing, PNC clearly made the most meaningful improvement. If you're watching the banking sector, this is the kind of data that actually matters for understanding which institutions have more breathing room.