US Bank Stress Test Results

The results of the Federal Reserve Board's annual bank stress test showed that while large banks would endure greater losses than last year's test, they are well positioned to weather a severe recession and stay above minimum capital requirements. Additionally, the Board published aggregate results from its first exploratory analysis, which will not affect bank capital requirements. "This year's stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios," Vice Chair for Supervision Michael S. Barr said. "While the severity of this year's stress test is similar to last year's, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher. The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do." The Board's stress test is one tool to help ensure that large banks can support the economy during downturns. The test evaluates the resilience of large banks by estimating their capital levels, losses, revenue and expenses under a single hypothetical recession and financial market shock, using banks' data as of the end of last year. The individual results from the stress test inform a bank's capital requirements to help ensure a bank could survive a severe recession and financial market shock. All 31 banks tested remained above their minimum common equity tier 1 (CET1) capital requirements during the hypothetical recession, after absorbing total projected hypothetical losses of nearly $685 billion. Under stress, the aggregate CET1 capital ratio—which provides a cushion against losses—is projected to decline by 2.8 percentage points, from 12.7 percent to 9.9 percent. While this is a greater decline than last year's, it is within the range of recent stress tests. This year's hypothetical scenario is broadly compara post: BIG BANKS PERFORM WELL IN LATEST STRESS TESTS, FED SAYS -- WSJ BANKS CAN WITHSTAND A HYPOTHETICAL SEVERE RECESSION, FED SAYS -- WSJ STRESS TESTS FIND BIG BANKS CAN WITHSTAND $685 BILLION IN ESTIMATED LOSSES, MORE THAN LAST YEAR -- WSJ

The Federal Reserve Board on Wednesday released the results of its annual bank stress test, which demonstrates that large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession. "Today's results confirm that the banking system remains strong and resilient," Vice Chair for Supervision Michael S. Barr said. "At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses." The Board's stress test is one tool to help ensure that large banks can support the economy during economic downturns. The test evaluates the resilience of large banks by estimating their capital levels, losses, revenue and expenses under a single hypothetical recession and financial market shock, using banks' data as of the end of last year. All 23 banks tested remained above their minimum capital requirements during the hypothetical recession, despite total projected losses of $541 billion. Under stress, the aggregate common equity risk-based capital ratio—which provides a cushion against losses—is projected to decline by 2.3 percentage points to a minimum of 10.1 percent. This year's stress test includes a severe global recession with a 40 percent decline in commercial real estate prices, a substantial increase in office vacancies, and a 38 percent decline in house prices. The unemployment rate rises by 6.4 percentage points to a peak of 10 percent and economic output declines commensurately. The test's focus on commercial real estate shows that while large banks would experience heavy losses in the hypothetical scenario, they would still be able to continue lending. The banks in this year's test hold roughly 20 percent of the office and downtown commercial real estate loans held by banks. The large projected decline in commercial real estate prices, combined with the substantial increase in office vacancies, contributes to projected loss rates on office properties that are roughly triple the levels reached during the 2008 financial crisis. The $541 billion in total projected losses includes over $1 post at 4:30pm: US Fed Says 2023 Stress Test Shows Large Banks Well Positioned to Continue Lending in a Severe Recession Fed Says Test Showed Large Bank Trading Books Were Resilient to a Rising Interest Rate Environment post at 4:32pm: FEDERAL RESERVE: ALL 23 BANKS IN THE STRESS TESTS REMAIN ABOVE MINIMUM CAPITAL REQUIREMENTS IN WORST-CASE SCENARIO. post at 4:32pm: US Banks Pass Fed Stress Test, Clearing First Hurdle For Payouts - Banks Allowed To Announce Payouts Starting Friday

The Federal Reserve Board on Thursday released the results of its annual bank stress test, which showed that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession. All banks tested remained above their minimum capital requirements, despite total projected losses of $612 billion. Under stress, the aggregate common equity capital ratio—which provides a cushion against losses—is projected to decline by 2.7 percentage points to a minimum of 9.7 percent, ...

The Federal Reserve Board on Thursday released the results of its annual bank stress tests, which showed that large banks continue to have strong capital levels and could continue lending to households and businesses during a severe recession. "Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery," said Vice Chair for Supervision Randal K. Quarles. All 23 large banks tested remained well above their risk-based minimum capital requirements and as laid out previously by the Board, the additional restrictions put in place during the COVID event will end. All large banks will be subject to the normal restrictions of the Board's stress capital buffer, or SCB, framework. The SCB framework was finalized last year and maintains strong capital requirements in the aggregate for large banks with an increase in requirements for the largest and most complex banks. It sets capital requirements via the stress tests, and as a result, banks are required to hold enough capital to survive a severe recession. If a bank does not stay above its capital requirements, which include the SCB, it is subject to automatic restrictions on capital distributions and discretionary bonus payments. The Board's stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their losses, revenue, and capital levels—which provide a cushion against losses—under hypothetical scenarios over nine future quarters. This year's hypothetical scenario includes a severe global recession with substantial stress in commercial real estate and corporate debt markets. The unemployFederal Reserve gives U.S. banks a thumbs up as all 23 lenders easily pass 2021 stress test The Federal Reserve announced Thursday that the biggest U.S. banks could easily withstand a severe recession, a milestone for the once-beleaguered industry. The Fed, in releasing the results of its annual stress test, said that all 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn. That scenario included a “severe global recession” that hits commercial real estate and corporate debt holders and peaks at 10.8% unemployment and a 55% drop in the stock market, the Fed said. While the industry would post $474 billion in losses, loss-cushioning capital would still be more than double the minimum required levels, the Fed said. If there was an anticlimactic note to this year’s stress test, it’s because the industry underwent a real-life version in the past year when the coronavirus pandemic struck, leading to widespread economic disruption. Thanks to help from lawmakers and the Fed itself, banks fared extremely well during the pandemic, stockpiling capital for expected loan losses that mostly didn’t materialize. Nevertheless, during the pandemic, banks had to undergo extra rounds of stress tests and had restrictions imposed on their ability to return capital to shareholders in the form of dividends and buybacks. Those will now be lifted, as the Fed has previously stat post at 4:37pm: US Federal Reserve To Lift Pandemic Restrictions On Bank Share Buybacks And Dividends On June 30 After Banks Clear Stress Test

The Federal Reserve Board on Friday released a second round of bank stress test results this year, which showed that large banks had strong capital levels under two separate hypothetical recessions. "The banking system has been a source of strength during the past year and today's stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy," said Vice Chair for Supervision Randal K. Quarles. The Board's stress tests help ensure that large ...