U.S. banks made it through the latest round of stress testing relatively unscathed, setting investors up for news next week of payouts from the industry's biggest names.
Test results released Thursday by the Federal Reserve show that the 34 institutions under scrutiny have enough capital to make it through the two scenarios regulators posed — one akin to the financial crisis and another entailing a shallower downturn.
Under the scenarios, the banks tested "would experience substantial losses." However, in total, the institutions "could continue lending to businesses and households, thanks to the capital built up by the sector following the financial crisis."
The tests marked the third straight year the banks all met the Fed's standards for health and could boost arguments from Republican legislators and President Donald Trump for loosening regulations.
"This year's results show that, even during a severe recession, our large banks would remain well-capitalized," Fed Governor Jerome H. Powell said in a statement. "This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough."
In the most severe scenario, bank losses are projected to be $493 billion. In the less severe, the losses were put at $322 billion.
The tests are part of the Dodd-Frank reforms instituted after the crisis that mandated banks raise capital levels to brace against another crisis.
Thursday's results are the first in a two-step process, with the second and more important happening Wednesday when the Fed will approve or disapprove the banks' plans to return capital to shareholders. Indications are that some of the largest banks want to return more than 100 percent of profits.