All major US banks pass Fed’s 2024 ‘stress test’

WASHINGTON, United States — All 31 big US banks have passed the Federal Reserve’s annual “stress test” designed to assess how well they would fare in a major financial crisis, the US central bank said Wednesday, while warning that losses would be higher than last year.

The stress test was broadly similar to last year, the Fed said in a statement, and modeled a severe global recession that caused a 40 percent decline in commercial real estate prices, a 36 percent fall in house prices, and a sharp spike in the unemployment rate.

“This year’s stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios,” Fed Vice Chair for supervision Michael Barr said in a statement.

READ: US banks shrug off turmoil to ace Fed’s annual health checks

“While the severity of this year’s stress test is similar to last year’s, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher,” he added.

Credit card, corporate credit portfolios

Barr said the higher hypothetical losses stem from three issues: “Substantial increases” in credit card balances and higher delinquency rates; riskier corporate credit portfolios; and a combination of higher expenses and lower income from fees.

READ: Borrowers, especially the young, struggle with credit card debt

This year’s stress test was carried out on 31 lenders, up from 23 last year due to the inclusion of some big banks which are only required to conduct them every other year, the Fed said.

The US central bank’s test found that the aggregate decline in the capital ratios for the 31 banks was 2.8 percent of risk-weighted assets, up slightly from last year, “but within the range of recent stress tests.”

“The Federal Reserve’s latest stress test results once again show that America’s banks remain healthy, highly capitalized, and well prepared to weather a severe recession,” American Bankers Association president Rob Nichols said in a statement.

“The continued strength and resilience of the banking sector is further evidence that the recent tsunami of new regulation, including proposed higher capital standards, is unwarranted,” he added.