Deutsche Bank AG’s U.S. arm defied predictions and passed the Federal Reserve’s stress test, handing the embattled German lender a rare victory as it struggles to turn around its business. Every other bank also cleared the annual exam.

The Fed’s endorsement of Deutsche Bank’s internal oversight -- after its units failed three exams in recent years -- show Chief Executive Officer Christian Sewing is making progress in addressing the company’s history of lax controls and misconduct, which have fueled billions of dollars in legal costs and taken a toll on its balance sheet.

Two firms -- JPMorgan Chase & Co. (JPM.N) and Capital One Financial Corp. (COF.N) -- passed after tempering their initial proposals to pay out capital to shareholders. And Credit Suisse Group AG’s U.S. arm passed on the condition it improves its ability to estimate trading losses in a downturn.

The largely positive findings announced Thursday clear the way for a dozen major U.S. lenders to unveil their plans for dividends and stock buybacks for the next 12 months, which analysts have projected may total about US$150 billion. Fed officials said they approved payouts that will slightly exceed the banks’ projected profits for the next four quarters. Overall, the regulator said its review showed big banks are resilient and managing capital carefully.

For Deutsche Bank’s Sewing, the Fed’s finding comes at a crucial moment as he develops another turnaround plan for Germany’s largest bank, potentially including deep cuts to U.S. operations. Sewing has repeatedly said the bank remains committed to having a presence in America so that it can serve as an alternative to U.S. investment banks for European businesses. Yet some investors and regulators have criticized the firm’s exposure there.

Sewing assumed control of Deutsche Bank last year just before the Fed failed the firm’s subsidiary, citing “widespread and critical deficiencies” in capital-planning abilities. The lender vowed to keep implementing improvements.

The bank devoted significant resources to its capital-planning process and stepped up how it’s been handling some supervisory issues the Fed raised with the firm, a senior Fed official said in a briefing with reporters. The test is only part of the regulator’s oversight of Deutsche Bank’s U.S. operations, looking at capital and capital planning, and the Fed won’t be complacent about the German lender, the official said.

This year, the Fed gave Credit Suisse’s U.S. arm until Oct. 27 to address weaknesses in the company’s assumptions for trading losses, the regulator wrote in a report.

JPMorgan scaled back its initial proposal for payouts a second straight year after the Fed said the plan could leave the bank just below regulatory thresholds in a hypothetical financial shock. Capital One fell short after the Fed projected steeper losses on credit-card portfolios in a severely stressed scenario. Still, both lenders passed after making adjustments.

The Fed’s test gives banks a way to maximize how much profit they disburse to investors or their overseas parent companies. If executives initially ask to pay too much, the regulator gives them a chance to adjust their plans as needed before issuing a final verdict.

That strategy helped to drive up total payouts by about 30 per cent in each of the past two years, and may be now reaching its limit. Analysts expect the increase this time will be only 3 per cent.

The tests have become the most important tool for regulating the U.S. financial industry since the 2008 credit crisis showed many firms were lavishing profits on investors and retaining too little capital to absorb losses in an emergency. This is only the second time all banks passed since the reviews began in 2009. The last time it happened was 2017, when the U.S. units of major overseas lenders weren’t subjected to the qualitative portion of the test.

The Fed has signaled in recent years it’s more satisfied with the buffers banks built to handle emergencies, letting payouts rise. Thursday’s results confirmed analysts’ predictions that firms will pay out more than 100 per cent of their profits in the next four quarters.

This time, the test was easier on capital markets businesses. That was a break for Goldman Sachs Group Inc. (GS.N) and Morgan Stanley (MS.N), which both fared well in an initial round last week estimating the impact of an economic shock if banks maintained previous payouts.

Last year, the pair were restrained from expanding payouts after the Fed estimated their capital would dip below required minimums in its hypothetical scenario. Still, they were allowed to pass because some of the decline was a result of one-time charges related to the 2017 federal tax overhaul. This time, analysts have predicted both banks will modestly increase their total payout in dollar terms.

Deutsche Bank previously struggled with the qualitative portion of the stress test -- a more subjective review that looks at areas such as risk-management, data-collection capabilities and capital planning. Past failures have prevented it from repatriating profits to its parent company, leaving its U.S. operations with more than enough capital to pass the quantitative side of the test. Now it may repatriate some of that excess cash.

The bank still faces multiple investigations in the U.S. and in Europe over issues including suspected lapses in its anti-money laundering controls.

This was the smallest group of banks that the Fed tested. After Congress passed a law last year ordering less-strict treatment of smaller banks, the central bank eased the burden on a dozen regional U.S. lenders and half a dozen smaller foreign banks, which are now tested every other year and weren’t included in this year’s exercise.