Federal Reserve President Michelle Bowman, who has been nominated by U.S. President Donald Trump to serve as vice chair for oversight of the Federal Reserve Board, testifies during her confirmation hearing before the Senate Committee on Banking, Housing, and Urban Affairs at the U.S. Capitol in Washington, DC, on April 10, 2025.
Kevin Mohatreuter
Big U.S. banks are on track to absorb more than $708 billion in losses from the deep global recession while continuing to lend to households and businesses, according to the Federal Reserve’s annual stress test released Wednesday.
All 32 banks examined by the Fed still exceeded minimum capital requirements based on the regulator’s hypothetical scenario, which included a spike in unemployment to 10%, a 39% decline in commercial real estate prices and a 30% decline in home prices.
The industry’s common equity Tier 1 capital ratio, a key capital measure for absorbing losses during economic downturns, fell 1.6 percentage points during the exercise period and remained comfortably above the required minimum level. The group’s expected losses include about $200 billion on credit cards, $160 billion on commercial and industrial loans and $75 billion on commercial real estate.
“Today’s results highlight the strength of our banking system,” Michelle Bowman, the Federal Reserve’s vice chair for supervision, said in a statement.
The annual exercise comes at a crucial time for banking regulation, as unlike previous years, the outcome will not affect the amount of capital large banks need to hold.
That’s because the Fed announced in February that it would leave stress test buffers in place until 2027 as regulators rework their methodology in light of industry complaints, a move that could ultimately reset the amount of capital companies must hold against future economic downturns.
KBW analysts led by Christopher McGratty said in a June 21 research note that this year’s exercise is “on track” and that banks will likely continue to focus on the pending Basel III endgame proposals expected later this year rather than the stress test results themselves.
If this year’s results were counted toward capital requirements, KBW would morgan stanley, city group, citizen finance and key corp We would have seen a significant reduction in capital buffers.
