Fed gives OK to 30 banks to up dividends, buy back shares

WASHINGTON (AP) — The Federal Reserve on Wednesday gave the green light to plans by major banks in the U.S. to raise their dividends and buy back shares, judging their financial foundations sturdy enough to withstand a major economic downturn.

[...] the Wall Street institution was still allowed to return profits to shareholders, and it quickly announced plans to buy back up to $3.5 billion worth of its stock and to boost its dividend 33 percent.

Thirty-three banks were tested to determine if they have large enough capital buffers to keep lending, even if faced with billions of dollars in losses in another financial crisis and severe economic downturn.

Fed's most extreme hypothetical scenario in this year's tests envisions the U.S. economy falling into a deep recession causing the stock market to plunge 50 percent.

Unemployment climbs above 10 percent, while housing prices drop by 25 percent and commercial real estate prices tumble 30 percent.

In this scenario, investors would be so panicked that yields on short-term U.S. Treasury securities would go negative — meaning even the safest of assets would still lose money.