A year after three of the largest bank failures in U.S. history, the Federal Reserve says America’s banking giants have enough capital to survive a “highly stressful scenario.”
In its annual stress test, the Fed says 31 of the nation’s largest banks survived a simulation that hit lenders with about $685 billion in losses on credit cards, business loans and commercial real estate.
The two-year simulation tested a scenario in which the stock market plummets 55%, commercial real estate prices fall 40% and unemployment reaches 10%.
While all banks on the list have enough capital to survive the financial fallout, the Fed says banks’ balance sheets are riskier this year due to a rise in credit card balances, tighter lending margins and riskier corporate loan portfolios.
“Although the severity of this year’s stress test is comparable to last year, the test resulted in higher losses because bank balance sheets are somewhat riskier and costs are higher.
The purpose of our test is to ensure that banks have sufficient capital to absorb losses in a highly stressful scenario. This test shows that this is the case.”
JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley participated in the test.
Troubled regional bank New York Community Bancorp, currently the 33rd largest bank in the US, was not part of the test.
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