According to the results of the annual stress test, the major banks active in the USA can cope well with an economic crisis in an emergency. In the negative scenario of the US Federal Reserve (Fed), which assumed a severe economic downturn, the 23 tested institutions were able to maintain an average capital ratio of 10.1 percent, as the Fed announced on Wednesday after the US stock market closed. At least 4.5 percent was required.
In view of the turbulence among the US regional banks in the spring, which led to the collapse of institutions, the regular stress check was a particular focus this time. Fed Vice Chairman Michael Barr said the results showed a “strong and resilient” banking system. But he also emphasized that this is only a measure of the health of the sector. “We should remain humble when it comes to how risks can arise.” Banking regulators must continue their work to ensure financial institutions are resilient to a range of economic scenarios, market shocks and other stresses.
The US subsidiary of Deutsche Bank, which had failed several times in the past, performed with a strong capital ratio of 17.4 percent. The Citizens money house had the worst rate at 6.4 percent. The financial group Charles Schwab achieved the highest value with 22.8 percent. The major US banks Bank of America, JPMorgan, Morgan Stanley, Citigroup, Goldman Sachs and Wells Fargo were also subjected to the stress check.
The Fed’s negative scenario this time saw the unemployment rate soar by 6.5 percentage points. In the 2022 test it was only 5.8 percentage points. In the crisis scenario, a 40 percent slump in prices for commercial real estate was also assumed this time. According to the results, the 23 institutions tested would suffer losses of 541 billion dollars in the negative scenario of the Fed. Those total losses included more than $100 billion from commercial real estate and home finance, and $120 billion in credit card losses, according to the Fed. The Federal Reserve introduced stress tests as a result of the 2008 financial crisis.