For the second year in a row, all of the nation’s largest financial institutions passed their stress tests, meaning each company has enough capital on hand to survive a “severe recession.” On Thursday, the Federal Reserve announced the results of the annual stress testing, which showed that all 34 participating financial institutions are adequately capitalized and could withstand another economic downturn.
“The nation’s largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession,” the Fed stated.
“This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” Fed Governor Jerome Powell added. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”
According to the Fed, the banks were tested on several scenarios. The most severe hypothetical scenario projects $383 billion in loan losses at each of the 34 participating bank holding companies during the nine quarters tested. The “severely adverse” scenario included a severe global recession wherein the U.S. unemployment rate rose approximately 5.25 percentage points to 10%, accompanied by heightened stress in corporate loan markets and commercial real estate. According to the Fed, each of the 34 banks has enough money to survive that scenario.
The 34 banks, which are those with $50 billion or more in total consolidated assets, make up more than 75% of the assets of all domestic bank holding companies. Included among the tested financial institutions are Bank of America, Citigroup, Fifth Third, Goldman Sachs, JPMorgan Chase, and Wells Fargo.