Federal Reserve officials struck a deal with Goldman Sachs Group Inc. and Morgan Stanley ahead of the recent annual stress tests to help them avoid an outright fail, The Wall Street Journal reported, citing "people familiar with conversations between the Fed and both banks."

On June 21, regulators informed Goldman and Morgan Stanley that they needed to reduce their combined $16 billion in shareholder payouts to almost half in order to fully pass the test. But they agreed to give the banks a "conditional non-objection" grade if they consented to freeze those payouts at recent levels, according to the report. Under this arrangement, the companies could pay out a combined $13 billion, or about $5 billion more than what they would have paid to shareholders if they had decided to retake the test and get a passing grade.

Goldman and Morgan Stanley had failed the quantitative portion of the exercise, which tests whether bank capital levels stay above regulatory requirements, the Journal reported.

Fed officials cited the impact of the tax reform as the reason for the "unprecedented" treatment of Goldman and Morgan Stanley. The 2017 tax law had a negative impact on the test results of the banks as it reduced the value of certain tax assets held by the banks and pushed them into the crisis scenario with lower capital reserves.