The largest US banks passed the Fed's stress test: capital held up under a scenario of $708 billion in losses.
The U.S. Federal Reserve has completed its annual stress test of the largest credit institutions. The results showed that all 32 systemically important banks are capable of maintaining capital above established regulatory minimums even under a hypothetical severe recession. The scenario set by the regulator assumed total credit losses exceeding $708 billion.
During the stress test, the Fed assessed whether banks could continue lending to the economy during a downturn. The aggregate capital level of participants fell by only 1.6 percentage points — from 12.8% to 11.2%, significantly exceeding the regulator's minimum requirements.
What is included in the scenario?
The modeling of the hypothetical crisis differed little from last year's. The Fed assumed unemployment rising to 10%, a 39% drop in commercial real estate prices, and a 30% decline in housing prices. In this model, the economy contracted by 4.6%, and stock indices plummeted by 58%, increasing pressure on corporate credit portfolios.
The Dodd-Frank Act, enacted after the 2008 crisis, requires the Fed to conduct such tests annually. This year's sample included all key players: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.
Where are the main risks concentrated?
The most significant potential losses were attributed to credit cards — approximately $200 billion. Losses on commercial and industrial loans are estimated at $160 billion, and on commercial real estate at $75 billion.
Capital declined most sharply for two reasons: due to large-scale credit losses and stringent assumptions in the stress model. Additionally, weaker expected investment income played a role — the model assumed a less pronounced rate cut than a year earlier.
High interest income helped mitigate the impact. Support came from strong recent bank results and a moderate rate cut in the scenario — this was sufficient to offset both negative factors.
Fed Vice Chair for Supervision Michelle Bowman called the results evidence of the banking sector's resilience. She also noted that capital requirements based on the test results will not change. Current standards will remain in effect until 2027, when the Fed will implement new calculation models incorporating market feedback.
Analyst Comment: For both the cryptocurrency and traditional markets, this is a signal of stability. Banks remain a reliable foundation for lending, reducing the risks of a systemic crisis. However, investors should remember: stress tests model past crises, not future scenarios involving digital assets or new forms of leverage.