One year after experiencing three of the largest bank failures in US history, the Federal Reserve has declared that America’s banking giants possess sufficient capital to withstand a “highly stressful scenario.” In its annual stress test, the Fed revealed that 31 of the country’s largest banks successfully weathered a simulation that subjected them to approximately $685 billion in losses from credit cards, business loans, and commercial real estate. The two-year simulation involved a scenario where the stock market plummeted by 55%, commercial real estate prices dropped by 40%, and unemployment spiked to 10%. Although all the banks on the list have enough capital to survive the financial aftermath, the Fed noted that their balance sheets are riskier this year due to increased credit card balances, tighter lending margins, and more precarious corporate credit portfolios. The severity of this year’s stress test mirrored that of last year’s, but the losses were higher due to the increased risk and expenses. The primary objective of the test is to ensure that banks possess enough capital to absorb losses during highly stressful situations, and this year’s results confirm that they do. The stress test included major banks such as JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley. However, the troubled regional bank New York Community Bancorp, currently the 33rd largest bank in the US, was not subjected to the test.
