Fed Stress Test 2024: US Banks Can Withstand Severe Recession, Says Report
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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Aishwarya is a journalism graduate with over three years of experience thriving in the buzzing corporate media world. She’s got a knack for decoding business news, tracking the twists and turns of the stock market, covering the masala of the entertainment world, and sometimes her stories come with just the right sprinkle of political commentary. She has worked with several organizations, interned at ZEE and gained professional skills at TV9 and News24, And now is learning and writing at NewsX, she’s no stranger to the newsroom hustle. Her storytelling style is fast-paced, creative, and perfectly tailored to connect with both the platform and its audience. Moto: Approaching every story from the reader’s point of view, backing up her insights with solid facts.
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