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Fed Stress Test 2024: US Banks Can Withstand Severe Recession, Says Report

The Federal Reserve’s 2024 stress test shows that major US banks remain resilient, well-capitalized, and capable of supporting the economy, even during a severe recession scenario with high unemployment and real estate losses.

Published By: Aishwarya Samant
Last Updated: June 30, 2025 01:59:00 IST

The Federal Reserve’s annual bank stress test has revealed that large American banks are well-equipped to withstand a severe recession. According to the US central bank, these institutions would remain above minimum capital requirements and continue lending to households and businesses even under significant financial stress.

The stress test assesses the resilience of major banks by estimating their potential losses, net revenue, and capital levels under hypothetical recession scenarios. This process ensures banks maintain sufficient capital to absorb losses, meet financial obligations, and support the economy by lending during economic downturns.

Conducted annually, the stress test uses at least two recession scenarios to evaluate capital adequacy. The Fed publicly releases bank-level results, while banks also perform their own stress tests and disclose the findings based on their specific risk profiles.

“Large banks remain well capitalised and resilient to a range of severe outcomes,” said Vice Chair for Supervision Michelle W. Bowman. She added, “One way to address the excessive volatility in the stress test results and corresponding capital requirements is for the Board to finalise the proposal that would average two consecutive years of stress test results, which was released in April.”

All 22 banks tested remained above their minimum Common Equity Tier 1 (CET1) capital requirements during the stress scenario. This year’s scenario, although still rigorous, is less severe than 2023’s, reflecting the stress test’s countercyclical design. It includes a severe global recession, with a 30% drop in commercial real estate prices, a 33% fall in house prices, a nearly 5.9 percentage point rise in unemployment to 10%, and a corresponding decline in economic output.

The Federal Reserve also corrected minor errors in loss projections for corporate and first-lien mortgage loans in the 2024 results. These adjustments did not impact the overall post-stress capital decline.

(From ANI)

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