The Fed's stress test: US banks withstand a scenario with $708 billion in losses
The U.S. Federal Reserve has completed its annual review of the country's largest banks. The results showed that all 32 systemically important credit institutions maintain capital above minimum requirements even under conditions of an extreme recession. The hypothetical scenario projected total credit losses exceeding $708 billion.
This stress test is a mandatory procedure introduced after the 2008 crisis under the Dodd-Frank Act. It aims to assess banks' ability to continue lending to the economy during a deep downturn. The sample included giants such as JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.
What the Scenario Entails
The Fed's model assumed extremely harsh conditions: unemployment rises to 10%, commercial real estate falls by 39%, housing by 30%, and GDP contracts by 4.6%. Stock indices in this scenario drop by 58%, significantly increasing losses on business loans. Despite this, the aggregate capital level declined by only 1.6 percentage points — from 12.8% to 11.2%, well above the regulator's established thresholds.
Where the Main Losses Are Concentrated
The largest potential losses were attributed to credit cards — approximately $200 billion. Losses on commercial and industrial loans are estimated at around $160 billion, and on commercial real estate at another $75 billion. Capital declined most sharply for two reasons: due to massive credit losses and stricter assumptions in the stress model. Weaker expected investment income also played a role — the model assumed a less pronounced rate cut than a year earlier.
High interest income helped cushion the blow. Strong recent bank results and a moderate rate decline in the scenario offset both negative factors. Fed Vice Chair for Supervision Michelle Bowman called the test results evidence of the banking sector's resilience.
Capital requirements will not change based on the test results — current standards will remain in effect until 2027. After that, the Fed will introduce new calculation models developed with input from market participants.
My view: The stress test results confirm that the U.S. banking system is in a much stronger position than 15 years ago. However, for the crypto industry, this is a signal: regulators continue to tighten risk oversight, and banks working with digital assets must be prepared for similar reviews. The resilience of the traditional sector is good, but it does not guarantee openness to innovation.