The largest US banks have passed the Fed's toughest stress test: losses of $708 billion did not break the system
The U.S. Federal Reserve (Fed) has completed its annual stress test, and the results are impressive. All 32 of the country's largest banks demonstrated the ability to maintain capital above minimum requirements even under a hypothetical deep recession scenario. Notably, the regulator incorporated total potential credit losses of over $708 billion into the scenario.
The purpose of this test, mandatory for banks with assets of $100 billion or more, is to verify whether systemically important financial institutions can continue lending to the economy during a downturn. This year's sample included giants such as JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.
Details of the Hypothetical Collapse
The scenario modeled by the Fed was severe: unemployment surges to 10%, commercial real estate drops by 39%, housing by 30%, and the economy contracts by 4.6%. Stock indices in this model crashed by 58%, sharply increasing losses on business loans. Despite this, the aggregate capital level fell by only 1.6 percentage points—from 12.8% to 11.2%—still significantly above the regulatory thresholds.
The largest expected losses came from credit cards, totaling around $200 billion. Commercial and industrial loans incurred losses of approximately $160 billion, while commercial real estate added another $75 billion. Capital declined most sharply due to two factors: massive credit losses and strict assumptions in the model. Weaker expected investment income also played a role, as the model assumed a less pronounced rate cut than the previous year.
Why the System Held Up
Higher interest income helped cushion the blow. Support came from strong recent bank performance and moderate rate cuts in the scenario—enough to offset both negative factors. Fed Vice Chair for Supervision Michelle Bowman called the results proof of the banking sector's resilience. Importantly, current regulations will remain in effect until 2027, after which the Fed will introduce new calculation models based on feedback.
Expert Commentary: This stress test is a powerful signal for markets, especially for cryptocurrency and DeFi investors. The resilience of the traditional banking system reduces the risk of systemic failures that could trigger panic and capital flight into digital assets. However, for us analysts, what matters more is this: the banks' ability to absorb $708 billion in losses confirms that regulators will not rush into radical policy tightening, which is generally positive for risky assets, including cryptocurrencies.