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The largest US banks have passed the second part of a tough annual stress test.

The approval by the Federal Reserve could give momentum to White House plans to loosen financial rules.

The Fed signed off on the firms' plans to distribute money to shareholders and use it for purposes other than being a buffer against another meltdown.

It said the proposals would not hinder the banks' ability to operate in a severe downturn.

This is the first time in seven years all 34 firms under review have passed the second part of an annual stress test brought in after the financial crisis.

Bank stocks jumped on the news.

Citigroup shares rose more than 2% in after hours trading. The firm said on Wednesday that it would increase its dividend and authorize up to $15.6bn in share buybacks in coming months.

Shares of JP Morgan Chase spiked almost 2%, while Bank of America climbed 1.3% and Goldman Sachs increased 1.2%.

Stress test

The Federal Reserve last week cleared all 34 financial firms in the first part of the review, which looked at whether the firms had enough of a financial cushion to absorb losses in a severe downturn.

In the second part of the review, the bank said the companies' capital plans, which include share buybacks and dividend increases, would not harm their ability to operate in a crisis.

"I'm pleased that the... process has motivated all of the largest banks to achieve healthy capital levels and most to substantially improve their capital planning processes," said Federal Reserve Governor Jerome Powell.

The Federal Reserve asked one company, Capital One Financial, to submit a new plan within six months that addresses weaknesses in its capital planning process.

Regulators said the firm did not "appropriately take into account the potential impact of the risks in one of its most material businesses."