Although the banks, including household names like JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N), would suffer $383 billion (£302 billion) in loan losses in the Fed's most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year's level. The banks, with at least $50 billion in total assets, represent more than 75 percent of domestic banking assets.
The Fed introduced stress tests after the 2008 financial crisis rocked markets around the globe in order to examine whether the country's biggest banks could handle a severe recession. The reviews have encouraged the 34 banks to add more than US$750 billion (S$1.04 trillion) in common equity capital since 2009, with a focus on safe and less profitable businesses.
"This year's results show that, even during a severe recession, our large banks would remain well capitalized", Fed Governor Jerome Powell said in a statement. Before Thursday's results, analysts predicted banks would be able to return more than US$120 billion to shareholders over the next four quarters, or about 85 percent of their profit. The ratio of capital, which allows lenders to absorb losses, to risk-weighted assets would drop from 12.5 percent to 9.2 percent.
The two-part test revealed that the biggest U.S. lenders would be hit by $383bn in loan losses in a hypothetical scenario in which the USA employment rate rose to 10 per cent.
The tested banks included Bank of America, JP Morgan Chase, Wells Fargo, Morgan Chase and the Deutsche Bank Trust Corp, a U.S. unit of the troubled German financial giant. That's when the Fed will announce whether it has approved banks' requests to increase dividends or buy back shares.
The second set of results, which outline which banks may return capital to investors, are due next week.
It's the third consecutive year there have been no banks failing. It was the first time the tests showed losses from credit card loans rising to an equal level with losses from commercial and industrial loans, the Fed said. They then ask what that would do to a bank's balance sheet. This was the first year that all the country's big banks passed since the recession.
FILE - This Monday, July 18, 2016, file photo shows the top of a Bank of America ATM booth, in Woburn, Mass.