Investors will get a better read on whether or not the Federal Reserve will raise interest rates as it begins the second round of its bank stress test, Dick Bove said Wednesday.
"The second round really tells you whether the Fed is tightening the screws a little bit harder or not. In other words, we know the banks have more-than-adequate capital to meet depression-like environment, and that's what the first round of the stress test showed," the vice president of equity research at Rafferty Capital told CNBC's "Worldwide Exchange."
The central bank said last week that the 31 banks that underwent the stress test passed round one.
Based on these results, Bove said, U.S. banks should be able to increase their dividends or their stock buyback programs. "However, if the Fed has made the decision that it wants [banks] to have even more capital than required a few months ago, then they'll be questions as to how much dividend increases they'll be allowed to put through."
He also said his outlook on banking stocks remains positive despite their performance this year. "If you look at bank stocks within the past 12 months, what you can see is that the KBE, the ETF that relates to banking stocks, is down about 4 percent in a period in which the stock market, as measured by the S&P 500 is up 9.50 percent," Bove said. He said the stocks are not down because of any fundamental business elements.