The Federal Reserve on 25 June said a prolonged economic downturn could saddle the nation’s biggest banks with up to $700bn in losses on soured loans and ordered them to cap dividends and suspend share buybacks to conserve funds.

In a worst-case scenario, where unemployment remains high and the economy doesn’t bounce back for a few quarters, the 33 largest US banks would suffer heavy loan losses that would erode the capital buffers meant to keep them on stable financial footing, the Fed said when it announced the results of its annual stress tests.