Remember all the stress test drama from 2009? Get ready for a repeat because the Federal Reserve has just ordered that the 19 largest banks must demonstrate their capital is adequate to survive another economic downturn. Banks are required to submit capital plans and detailed balance sheet data by Jan. 7, 2011. Banks that are deemed healthy will be able to hike their dividends.

This is a big issue for Goldman Sachs (NYSE: GS) in particular, as it would like to buyback the $5 billion in preferred shares it issued to Warren Buffett at the height of the crisis. The shares carry a massive 10 percent interest rate that is just punishing Goldman now. Its plans have been held up by the Fed, which wants to make sure the bank can really afford the repurchase, which would negatively affect its Tier 1 capital.

If all goes well, look for banks to hike dividends in the first quarter. But it is not necessarily a sure shot that banks will pass these stress tests. The foreclosure fiasco may end up taking a big bite out of profits--that has to be factored in. And the economy remains sluggish. So, as of now, the ultimate costs remain uncertain.  

For more:
- here's a CNNMoney article

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