23 US Banks Pass Stress Test... "Sufficient Capital in Case of Recession"

Fed "Able to Withstand Recession While Maintaining Credit Supply"

The Federal Reserve (Fed) has announced that 23 major U.S. banks have passed its stress test assessing their ability to withstand a severe economic recession.

On the 28th (local time), the Fed released the results of the stress test, stating that "the large banks have demonstrated they are in a suitable position to continue lending to households and businesses even while enduring a severe economic downturn."

The Fed conducts an annual stress test on banks with assets exceeding $250 billion. This year's test drew particular attention amid concerns over bank soundness following the collapse of Silicon Valley Bank (SVB).

In this year's stress test, the Fed assumed an extreme recession scenario including a peak unemployment rate of 10%, a 40% decline in commercial real estate prices, and a 38% drop in housing prices. It then evaluated the impact on banks' financial soundness based on their year-end indicators. As a result, the 23 banks were expected to incur losses totaling $541 billion, but all met the minimum capital requirements and continued to supply credit to the economy.

Regarding financial soundness, the average Common Equity Tier 1 (CET1) capital ratio of the 23 banks was projected to fall from 12.4% at the end of last year to 10.1%, a decrease of 2.3 percentage points. However, this remained above the minimum threshold of 4.5%. The decline in capital ratio was smaller than the 2.7 percentage points seen in last year’s test but was similar to results from recent years.

Notably, the Fed focused this year’s stress test on commercial real estate, which is facing collapse risks due to rising vacancy rates. The 23 banks held 20% of all commercial real estate loans held by U.S. banks. Of the expected $541 billion in losses, $100 billion were from commercial real estate and mortgage loans, and $120 billion from credit card losses, all larger than the losses recorded last year.

Michael Barr, Vice Chair for Supervision at the Fed, said, "Today’s results confirm that the banking system remains strong and resilient. Stress tests are the only way to measure the intensity of stress. We will continue our efforts to humbly consider how risks arise and ensure banks can respond resiliently to various economic scenarios, market shocks, and other stresses."

This content was produced with the assistance of AI translation services.