Fed says large US banks well-positioned to weather hypothetical downturn, several raise dividends

* Banks could absorb more than $700 billion in hypothetical losses, Fed says

* Aggregate high-quality capital fell from 12.8% to 11.2% during the test

* Fed plans to next update stress capital buffers after the 2027 test

By Pete Schroeder

WASHINGTON, June 24 (Reuters) - The U.S. Federal Reserve said on Wednesday that 32 of the nation's largest banks are well-positioned to weather a severe economic downturn and continue lending, as firms could absorb over $700 billion in hypothetical losses and remain above minimum capital requirements.

The results of the central bank's annual "stress test" found large banks' capital levels fell by 1.6 percentage points but remained above the minimum requirements, even after weathering a hypothetical global recession in which real estate prices drop by one-third, unemployment spikes to 10%, and financial markets are in turmoil.

"Today's results underscore the strength of the banking system," said Fed Vice Chair for Supervision Michelle Bowman in a statement.

Several banks said after the stress-test results they were raising their dividends.

JPMorgan will increase its quarterly common stock dividend to $1.65 per share in the third quarter and has authorized a new share buyback program. Goldman Sachs said it will increase its common dividend from $4.50 to $5 per share beginning next month, a 25% increase from last year.

Morgan Stanley increased its dividend 15%, to $1.15 per share and reauthorized a $20 billion share buyback program. State Street will increase its dividend by 10%.

Wells Fargo said it intends to increase its third-quarter dividend by 11% to 50 cents per share.

Under the test scenario, banks registered roughly $200 billion in credit card losses, $160 billion in losses from commercial and industrial loans, and $75 billion in losses from commercial real estate. Capital fell due to higher loan losses, as well as lower projected unrealized gains, but increased because of higher interest income from smaller hypothetical declines in interest rates.

Banks' aggregate high-quality capital ratio dipped from 12.8% to a low of 11.2% during the exam. First Citizens recorded the lowest stress ratio of 6.7%, while Charles Schwab (SCHW) posted the highest ratio of 32.2%.

CAPITAL BUFFERS REMAIN THE SAME The results are less dramatic than in prior years. The Fed said in February it would not use this year's results to update each firm's stress capital buffer, an added layer of capital large firms must hold that fluctuates based on how well they perform on the test.

The central bank reaffirmed that plan on Wednesday, saying it planned to next update that buffer following the 2027 test, after officials have solicited feedback and revamped their stress-testing models and scenarios. The central bank is reworking its stress-testing process in response to years of criticism from the banking industry that the exams are opaque and subjective.

Bankers are waiting for regulators to implement several new capital rules favored by the industry, most notably the Basel proposal on risk-based capital under consideration.

Those changes could unlock billions of dollars in additional capital for banks to return to investors or deploy within their businesses.

"The industry is in good shape with capital, as all the names have excess capital relative to the implied pro forma target capital ratios and requirements as the industry continues to be in a position to take advantage of de-regulatory momentum," wrote KBW analysts in a note previewing the stress tests. (Reporting by Pete Schroeder; Editing by Rod Nickel and Andrea Ricci)