The Federal Reserve's annual test of big banks' financial health showed the largest US firms are strong enough to withstand a severe economic downturn, potentially clearing the way for banks to reward investors with dividends and stock buybacks.

The Fed said 29 of the 30 largest institutions have enough capital to continue lending even when faced with a hypothetical jolt to the US economy lasting into 2015, including a severe drop in housing prices and a spike in the unemployment rate.