The majority of the largest banks passed the Federal Reserve's annual stress test, the central bank said on Tuesday, while also allowing JPMorgan Chase & Co, Wells Fargo, U.S. Bancorp and others to raise dividends or buy back stock.
The Fed said 15 of the 19 largest U.S. banks would have satisfactory capital buffers, even if they suffered a financial shock that would see unemployment hit 13 percent and housing prices drop 21 percent.
The regulator said Citigroup, Ally Financial and SunTrust fared worst under that hypothetical financial shock, with Tier 1 common capital ratios of 4.9 percent, 4.4 percent, and 4.8 percent respectively.
MetLife, the largest life insurer in the United States, failed the stress tests on the basis of its risk-based capital ratio. At a 6 percent minimum, it was lower than any of the other banks examined.
The bank holding companies that came out top were Bank of New York Mellon with a Tier 1 common capital ratio of 13.1 percent under the hypothetical financial shock, State Street Corp with 12.5 percent and American Express with 10.8 percent.
The Fed is using the stress tests to give the markets a window into the health of the U.S. bank industry. It also uses the results of the exams to determine whether banks can withstand great financial turmoil and still have enough of a capital cushion.
Based on that determination, the Fed gives a thumbs up or thumbs down on dividends and stock repurchases.
"The test wasn't designed to create failures but to promote confidence in the system and to help the stronger guys to return capital," said Anton Schutz, financial services mutual fund manager for Mendon Capital in Rochester, New York.
The Fed gave JPMorgan permission to raise its quarterly dividend by a nickel to 30 cents and buy back as much as $12 billion of stock this year.
Wells Fargo was allowed to increase its quarterly cash dividend rate to 22 cents, while U.S. Bancorp got permission for a 56 percent increase in its dividend to 78 cents.