Although the banks, including household names like JPMorgan Chase & Co and Bank of America Corp, would suffer $383 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.
"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.
"This would allow them to lend throughout the economic cycle and support households and businesses when times are tough", he said.
Under the Fed's worst-case stress test scenario, the US unemployment rate more than doubles to 10 percent. 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 Federal Reserve plans to publicly release the results of CCAR on Wednesday, June 28, 2017. This part determines whether the banks would meet minimum requirements under the Fed's methodology, using materials they submitted.
The second phase is an annual Fed exercise that evaluates the banks' capital planning processes and capital adequacy. Regulators analyze whether a bank's current levels of stable capital give it enough of a cushion to keep lending during a credit freeze.
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In last year's second round, the Fed barred USA businesses of two European banks, Germany's Deutsche Bank and Spain's Santander, from raising dividends or boosting stock buybacks.
Even after being pounded by a severe economic downturn, banks collectively had a 9.2% capital buffer, staying well above the Fed's minimum of 4.5%.
Wall Street banks have enough armor to shield Americans from another financial crisis.
Next week, banks will learn whether the Fed is blocking or approving its plans to buy back stock or pay dividends to shareholders. The banks, with at least $50 billion in total assets, represent more than 75 percent of domestic banking assets.
The report said some stress tests should be conducted every two years instead of annually and that they should be limited to the largest banks. And by subjecting banks to the same model, the regulator might push them into businesses that turn out to be perilous, she said.