U.S. banks may have looked strong before the coronavirus pandemic, but they face more strain if weak economic conditions persist, the Federal Reserve warned Friday in its semiannual review of the financial system.

Bank stocks have sold off aggressively in recent months as investors worried about how banks would fare with much of the economy shut down. Banks increased their loan loss reserves in the first quarter, expecting that closed businesses will cause a flood of business and household loan delinquencies and defaults….