The largest U.S. banks weathered a "perfect storm": results of the Fed's stress test with $708 billion in losses
The U.S. financial system has demonstrated a high degree of resilience. All 32 of the country's largest banks successfully passed the Federal Reserve's annual stress test, even despite simulated total loan losses exceeding $708 billion. This is a significant signal for the market, confirming that systemically important institutions are capable of functioning under conditions of a deep recession.
What is included in the scenario?
The scenario developed by the regulator was extremely severe. It assumed unemployment rising to 10%, a 39% drop in commercial real estate prices, and a 58% collapse in stock indices. GDP in this model contracted by 4.6%. Despite this, the aggregate capital level of banks fell by only 1.6 percentage points — from 12.8% to 11.2%, which is significantly above the minimum regulatory requirements.
Main areas of losses
The largest losses are projected for credit card portfolios — around $200 billion. Losses on commercial and industrial loans are estimated at $160 billion, and on commercial real estate at $75 billion. Two factors intensified the pressure on capital: unprecedented volumes of credit losses and weaker expected investment income compared to last year. However, high interest income and strong recent bank results offset these risks.
Federal Reserve Vice Chair for Supervision Michelle Bowman called the results "proof of the banking system's reliability." She emphasized that the regulator will continue to improve the transparency of stress tests, but current capital requirements will remain unchanged at least until 2027.
Expert opinion. Successfully passing the stress test is a positive signal, but it does not eliminate structural risks. The market should remember: the Fed's models do not account for sudden liquidity crises, similar to the collapse of Silicon Valley Bank. Capital resilience is good, but resilience to panic is a completely different story. In an environment where cryptocurrencies and DeFi offer alternative hedging mechanisms, traditional banks must prove their viability not only on paper but also in real time.