The largest US banks passed the Federal Reserve's stress test: losses of $708 billion did not break the system
The U.S. Federal Reserve 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 regulatory minimums even under a hypothetical economic collapse. The scenario modeled by the regulator assumed total loan losses exceeding $708 billion — and the banks withstood it.
This test is not just a bureaucratic formality but a direct response to the 2008 crisis, enshrined in the Dodd-Frank Act. The regulator checks whether systemically important banks can continue lending to the economy during a recession. In short: the answer is yes, they can. The aggregate capital level fell by only 1.6 percentage points — from 12.8% to 11.2% — well above the thresholds set by the regulator.
What the stress test scenario showed
In the hypothetical scenario, unemployment soared to 10%, commercial real estate prices dropped by 39%, housing by 30%, and the economy contracted by 4.6%. Stock indices collapsed by 58%, sharply increasing losses on business loans. However, banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, managed to cope.
Main sources of losses
The heaviest losses came from credit cards — about $200 billion. Commercial and industrial loans added another $160 billion, and commercial real estate contributed around $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 — the model assumed a less significant rate cut than a year earlier.
High interest income, supported by strong recent bank results, helped cushion the blow. The moderate rate decline in the scenario was sufficient to offset both negative factors.
Federal Reserve Vice Chair for Supervision Michelle Bowman called the results "evidence of the resilience of the banking sector." She emphasized that the regulator continues to make stress tests more transparent and convenient for all market participants.
An important note: capital requirements based on the test results will not change. Current standards will remain in effect until 2027, when the Fed will introduce new calculation models developed with feedback from market participants.
Expert commentary: The resilience of the U.S. banking system is a positive signal for all markets, including the cryptocurrency market. However, it is worth remembering that hypothetical scenarios do not always account for systemic risks associated with sudden liquidity crises or cyberattacks. Nevertheless, the current stress test shows that traditional finance is prepared for serious shocks, which indirectly strengthens confidence in digital assets as an alternative class.