Fed Stress Test: Largest US Banks Withstand Scenario with $708 Billion in Losses
The U.S. Federal Reserve has completed its annual stress test, which confirmed the resilience of the country's largest credit institutions. All 32 banks with assets of $100 billion or more, including JPMorgan Chase, Bank of America, and Goldman Sachs, demonstrated the ability to maintain capital above minimum requirements even under a hypothetical recession scenario. The aggregate capital level fell by only 1.6 percentage points—from 12.8% to 11.2%—significantly above the regulatory thresholds.
Scenario Tougher Than Last Year
The model developed by the Fed under the Dodd-Frank Act assumed unemployment rising to 10%, a 39% decline in commercial real estate, and a 30% drop in housing. In this scenario, the economy contracted by 4.6%, and stock indices plummeted by 58%. Potential loan losses totaled $708 billion, of which $200 billion came from credit cards, $160 billion from commercial and industrial loans, and $75 billion from commercial real estate.
Where the Vulnerability Lies
Two main factors put pressure on capital: massive loan losses and the model's strict assumptions. However, the situation was mitigated by higher interest income that banks receive due to strong recent results and a moderate decline in rates under the scenario. Fed Vice Chair for Supervision Michelle Bowman called the test results evidence of the banking sector's reliability. Current requirements will remain unchanged until 2027, after which the regulator will introduce new calculation models based on feedback.
Expert Commentary: The stress test results are undoubtedly a positive signal for the market, but it's worth remembering that hypothetical scenarios never match reality 100%. The key risk for banks now is not so much credit losses as a sharp change in interest rates and liquidity, which could hit their balance sheets faster than any model assumes.