The Federal Reserve said Friday that the 18 biggest U.S. banks passed an annual "stress test," in which regulators check to make sure banks could withstand a deep recession and falling asset prices without collapsing.
The Fed said in a press release that the nation's largest bank holding companies would still be able to lend to households and businesses even during a severe global recession.
"The results confirm that our financial system remains resilient," the Fed's vice chairman for supervision, Randal Quarles, said in the statement.
The annual tests, which were mandated as part of the 2010 Dodd-Frank Act, are used by regulators to gauge whether giant U.S. banks like JPMorgan Chase (JPM - Get Report) , Citigroup (C - Get Report) and Goldman Sachs (GS - Get Report) could withstand a new financial crisis. The reason for the tests is that regulators have determined that a collapse of any of these big banks could put the global financial system and markets at risk.
The tests serve as a precursor for a separate Fed announcement planned for next week, in which the regulator will signal its approval or disapproval of banks' proposals for dividends and stock buybacks over the coming year.
According to the Fed, the banks were evaluated on their ability to withstand a severe global recession where the U.S. unemployment rises to 10%, from just under 4% now, with elevated defaults on corporate loans and stress in commercial real-estate markets.
Under that scenario, the 18 banks would incur some $410 billion of losses, but they would still have enough capital to satisfy minimum requirements, according to the statement Friday.
The highest score -- indicating the most financial strength -- went to Credit Suisse (CS - Get Report) , the Swiss lender, which would come out of the hypothetical recession with a capital ratio of 18.4%, according to a Fed report released Friday. JPMorgan's final score was 8.1%, while Goldman Sachs had the lowest among the biggest Wall Street firms, at 7.6%.
The Fed did not force the banks to undergo a "qualitative" stress test as in years past, as part of a push by President Donald Trump and his regulatory appointees to roll back some of the toughest restrictions enacted after the financial crisis and bailouts of 2008.
And under new regulations, some 17 firms that had to take the last year were exempted from this year's evaluations.
The stress tests are a key input when the Fed is deciding whether to allow banks to return capital their shareholders via dividends and stock buybacks. Capital represents the extra assets that banks must hold to protect depositors and prevent bailouts, but bank CEOs often try to minimize the layer as a way of juicing their earnings.
Many banks paid out big dividends in the years before the 2008 financial crisis, leaving them with insufficient capital to withstand the crisis. The biggest U.S. banks survived the crisis by getting bailouts from the U.S. Treasury Department and taking more than $1 trillion in secret emergency loans from the Federal Reserve.
"The nation's largest banks are significantly stronger than before the crisis and would be well-positioned to support the economy even after a severe shock," Quarles said in the statement.