economy
Federal Reserve says U.S. banks can withstand $708 billion in losses amid overhaul of capital rules
The Fed's annual exercise comes at a pivotal moment for bank regulation because, unlike previous years, the results will not affect capital requirements.
TL;DR
- Major U.S. banks can withstand over $708 billion in losses during a severe recession, according to the Federal Reserve's annual stress test.
- All 32 banks tested remained above minimum capital requirements in a hypothetical scenario with high unemployment and falling real estate prices.
- The common equity tier 1 capital ratio for the industry fell 1.6 percentage points but stayed comfortably above minimums.
- Projected losses include significant amounts from credit cards, commercial and industrial loans, and commercial real estate.
- This year's stress test results will not affect capital requirements, as regulators are reworking the methodology and will leave buffers untouched until 2027.
- Industry analysts suggest banks are focused on pending Basel III Endgame proposals rather than the current stress test results.