Large U.S. lenders will probably face higher capital requirements following June 23 stress test results, adding another drag to shareholder distributions.

JPMorgan Chase & Co. and Wells Fargo & Co. have both already said their stress capital buffers, or SCBs, will likely rise following the tests. SCBs, which are a component of large banks' capital requirements, may go up by about 20 basis points on average across the U.S.'s eight global systemically important banks and Northern Trust Corp., Wolfe Research analyst Steven Chubak said in a June 2 report ahead of the stress test results.

Banks may need to put more money aside due to factors including higher risk-weighted assets, or RWAs, deterioration in the value of bond portfolios, lower credit loss reserves and forthcoming increases in regulatory capital surcharges for some of the biggest lenders. The pressures are likely to extend a decline in repurchases this year after a surge in 2021 caused by the wind-down of pandemic financial restrictions.

The Federal Reserve stress tests will determine what size SCBs banks need based on hypothetical losses over a nine-quarter period characterized by a sharp deterioration in economic and market conditions. The buffer has a 2.5% minimum.

The "bias for SCBs is slightly higher on modestly tougher scenarios," including lower starting points for credit reserves, Jefferies analyst Ken Usdin said in a June 8 report. Still, most banks on the 2.5% floor will likely stay at that level, he said.

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Lenders have less leeway for absorbing higher SCBs while maintaining shareholder distributions because excess reserves have declined over the past year. Common equity Tier 1, or CET1, surpluses, as a percentage of RWAs, are down at 24 of the 34 banks subject to this year's stress test, according to S&P Global Market Intelligence data. The median drop was 17.6%, and declines at the four largest banks ranged from 46.0% to 62.2%. The combined value of surplus CET1 tumbled 22.8% to $272.51 billion.

The Big Four banks have CET1 surpluses of $11.10 billion to $17.14 billion. Still, Bank of America Corp., Citigroup Inc. and JPMorgan need to build capital to meet internal targets that include cushions above anticipated increases in their surcharges as global systemically important banks.

Usdin expects the banks he covers to return "a decent amount of capital" in 2023 — 83% of net income and 9% of market capitalization on average. Macroeconomic risks may prompt a more cautious stance, he said.

JPMorgan Chase has estimated that its earnings could generate $13 billion to $22 billion of excess capital for new business opportunities and capital distributions beyond dividends by the first quarter of 2024.