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As regulators took a hard look at the financial industry, they found some of the nation's largest institutions better prepared than others to sustain future market shocks, paving the way for some banks to increase their dividends and buy back shares.

The results of so-called stress tests on Thursday, mandated by the Dodd-Frank financial overhaul law and conducted by the Federal Reserve, indicate that most banks would survive a severe recession and a crash in the markets. The tests, which measured a bank's capital during extreme hypothetical conditions, also produced some unlikely winners.

Citigroup, for example, outperformed its rivals just one year after a poor performance embarrassed the bank. Bank of America also showed improved capital levels under stressed conditions.

Morgan Stanley and JPMorgan Chase, however, produced some of the lowest results among large Wall Street firms. The banks have significant trading operations that can rack up big losses in turbulent times. Goldman Sachs, another trading firm, also struggled under one measure of future health.

The test results offer an important window into the financial system four years after the banking industry teetered on the brink of collapse. Regulators liked what they saw, in general, and cheered what the improvements portend for consumers and the economy.

"The stress tests are a tool to gauge the resiliency of the financial sector," a Federal Reserve governor, Daniel K. Tarullo, said in a statement. "Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty."

But the tests may not fully capture some forces and events that occur during a financial crisis. For instance, Wall Street firms may lose access to short-term loans that are critical to their survival. It's almost impossible to project the impact of the rapid collapse of one or two large financial firms, as happened in 2008 when Lehman Brothers and American International Group were melting down.

Investors will pore over the results to gauge how much money banks is likely to be returned to their shareholders. In the aftermath of the financial crisis, regulators prevented lenders like Citigroup and Bank of America from increasing their dividends or repurchasing shares, forcing them instead to hoard capital to absorb losses.

Behind the scenes in the coming days, the Fed will signal to each bank whether it can proceed with its most recent payout plan, submitted in January. If the Fed objects, a bank will have an opportunity to temper its proposals for dividend payments and share buybacks before releasing the plans publicly, potentially creating a tense face-off with regulators. For 17 of the 18 banks, their ratios are well above the 5 percent benchmark that the banks have to exceed for tier 1 common capital to get their capital plans approved.

After the stress test results were announced, Citigroup said that it had asked the Federal Reserve for permission to carry out a $1.2 billion in stock buybacks through the end of the first quarter of next year. The bank intend to keep its quarterly dividend at a penny a share.

The stress tests have already created tension between regulators and banks. The results, which reveal in striking detail the losses that banks will suffer in times of stress, has prompted wrangled with the Fed over how to conduct the tests and how much data to release.

But regulators argue that past blowups prompted the need for the stress tests. The annual effort, the regulators say, provides a regular health check for the same banks that brought the economy to its knees just over four years ago.

Underpinning the Fed's stress tests are some basic assumptions. The tests estimated that 18 banks sustain combined losses of $462 billion, in a period of considerable financial and economic stress in which unemployment soars, stock prices halve and house prices drop by more than 20 percent.

The tests analyze capital as a measure of health, assessing how much capital would remain at the end of 2014 once banks are subjected to hefty losses.

In a surprise, Citigroup had capital equivalent to 8.9 percent of its assets at the end of 2014, well above last year's showing. Bank of America's so-called Tier 1 common capital ratio registered at 6.9 percent, also an improvement.

But Morgan Stanley's ratio came in at 6.4 percent. JPMorgan was 6.8. Those numbers are lower than rivals', but they are still strong capital numbers after a crisis.

On one important alternative measure of capital, Goldman Sachs had a poor showing compared with its peers. Under the stress situation, the bank's Tier 1 leverage ratio — which weighs assets differently — would fall to a low of 3.9 percent. This could become an issue in any discussions between Goldman Sachs and the Fed about the bank's capital plan. When regulators assess whether a bank can proceed with its capital plan, the Tier 1 leverage ratio cannot fall below 3 percent.