The Federal Reserve confirmed the resilience of the U.S. banking system: stress test with $708 billion in losses passed.
All 32 largest banks in the United States have successfully passed the Federal Reserve's annual stress test, demonstrating their ability to maintain capital above minimum requirements even under a hypothetical deep recession scenario. The regulator simulated a scenario where total potential credit losses reach a staggering $708 billion.
Key Scenario Parameters and Results
As part of the review, the Fed assessed whether systemically important banks could continue lending to the economy during a downturn. The simulated recession included unemployment rising to 10%, a 39% drop in commercial real estate prices, and a 30% decline in home prices. The economy in this model contracted by 4.6%, and stock indices plummeted by 58%, significantly increasing the strain on corporate loan portfolios.
Despite such harsh assumptions, the aggregate capital level of the tested banks fell by only 1.6 percentage points — from 12.8% to 11.2%. This figure remains notably above the regulatory minimum thresholds, confirming the high resilience of the banking sector.
Main Sources of Losses and Supporting Factors
The largest losses under the scenario came from credit card portfolios — approximately $200 billion. Losses on commercial and industrial loans amounted to roughly $160 billion, while loans secured by commercial real estate accounted for an additional $75 billion.
The decline in capital was driven by two main factors: substantial credit losses and strict assumptions in the stress model, including weaker expected investment income (the model assumed a less pronounced rate cut than a year earlier). However, the negative impact was mitigated by high interest income, supported by banks' strong recent results and a moderate rate decline in the scenario. This was sufficient to offset both negative factors.
Capital requirements resulting from the tests will remain unchanged until 2027, after which the Fed plans to implement new calculation models developed based on feedback from market participants.
Cryptalist Analysis: The successful completion of the stress test is undoubtedly a positive signal for the entire financial system. However, for the cryptocurrency market, this means that traditional finance retains high appeal for institutional investors, which may temporarily curb capital flows into digital assets. Nevertheless, further easing of the Fed's monetary policy, which is embedded in the models, creates a favorable backdrop for the growth of risk assets, including cryptocurrencies, in the long term.