America's biggest banks have enough cushion to survive a nasty recession, but their defenses are weaker compared to a year ago, the Federal Reserve's latest stress test found.

The annual exercise, designed to gauge the health of the nation's largest financial institutions, put 31 banks through a hypothetical economic wringer.

The scenario included a severe global recession with 10% unemployment, a 40% plunge in commercial real estate prices, and a 38% drop in the stock market.

Banking giants JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup were among those tested, as well as credit card companies like American Express.

Despite the doomsday-like test scenario, all banks passed, maintaining sufficient capital levels to absorb losses and keep on lending.

"This year's results show that under our stress scenario, large banks would take nearly $685 billion in total hypothetical losses, yet still have considerably more capital than their minimum common equity requirements," said Michael Barr, the Fed's vice chair for supervision.

"This is good news," added Barr.

Credit card debt made up a quarter of all losses in test

Although all banks passed, the test revealed a number of chinks in the banks' armor.

The $685 billion in potential losses marks a $144 billion increase from last year's stress test, suggesting that banks' resilience has somewhat diminished.

“While banks are well-positioned to withstand the specific hypothetical recession we tested them against, the stress test also confirmed that there are some areas to watch,” Barr said.

“The financial system and its risks are always evolving, and we learned in the Great Recession the cost of failing to acknowledge shifting risks.”

The Fed pointed to credit card debt as a significant vulnerability for banks, with losses from this segment making up more than 25% of the total hypothetical losses in the stress test scenario.

Over the past year, big banks have seen their credit card balances balloon by more than $100 billion. At the same time, the proportion of borrowers falling behind on their credit card payments has jumped by over 40%.

However, it’s unlikely the banks will slow their lending down, even if things go south, according to Barr.

“Because of that extra capital cushion, we expect that large banks would be able to continue extending credit to households and businesses during a time of financial stress,” he said.

Banks hike their dividends in response

Despite the Fed's cautionary notes, banks didn't waste any time sharing their success. Just two days after the stress test results were released, several banks announced increased dividend payouts to shareholders.

JPMorgan Chase, the nation's largest bank, will boost its dividend to $1.05 per share, up from $1.00 previously. Bank of America is raising its payout to $0.24 per share from $0.22, while Wells Fargo announced a hike to $0.35 from $0.30.

The dividend increases signal that banks are confident in their ability to weather potential economic storms while still rewarding investors.