Some of Canada’s largest financial institutions will be among those subject to a new round of stress tests by the Federal Reserve to determine if major U.S. banks can withstand a downturn in the economy, the Globe and Mail reports.

Federal Reserve to stress test largest U.S. banks

A total of 31 financial institutions will be subject to the annual tests, including 19 that participated in a round of tests earlier this year to determine their exposure to financial turmoil in the United States and Europe. The Fed also plans to make some of the results public.

The Globe and Mail says among them are the U.S. operations of Royal Bank of Canada (TSX:RY) and Bank of Montreal (TSX:BMO). RBC operates a large wholesale and investment bank out of New York, while BMO has an extensive network of branches throughout the U.S. Midwest.

However, the newspaper says Toronto-Dominion Bank (TSX:TD), which has the largest U.S. network of any Canadian bank with 1,300 branches, is not on the list, because it is covered by older legislation and therefore exempted until 2015.

The latest round of tests comes at a time when many are concerned about U.S. banks’ exposure to the European debt crisis, which could throw that region into a recession and rattle global financial markets.

The Fed performed the first stress tests in the spring of 2009. The country’s 19 largest banks participated. The initial stress test reassured investors that America’s biggest banks had the resources to get through the recession and the fallout from the 2008 financial crisis.

For the latest test, the field has been expanded to 31 banks. The financial regulatory overhaul passed last year requires banks with at least $50 billion in assets to take part.

The Fed said that the banks would be required to test their ability to withstand a recession beginning at the end of this year that would drive unemployment up to more than 13% by early 2013. The U.S. jobless rate now stands at about nine per cent.

The central bank said the parameters of its test would reflect a sizable drop in economic activity not only in the United States but in the global economy.