Fed Annual Bank Stress Test: Large banks are well positioned to lend even during a severe recession

The Federal Reserve released its annual stress test to large banks. According to central banks, the results “demonstrates that large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.”

All banks passed the tests showing that have enough capital to weather an economic crisis. 

Key takeaways from the report: 

“All 23 banks tested remained above their minimum capital requirements during the hypothetical recession, despite total projected losses of $541 billion. Under stress, the aggregate common equity risk-based capital ratio—which provides a cushion against losses—is projected to decline by 2.3 percentage points to a minimum of 10.1 percent.”

“Under the severely adverse scenario, the aggregate CET1 (common equity tier 1) capital ratio of the 23 banks falls from an actual 12.4 percent in the fourth quarter of 2022 to its minimum of 10.1 percent, before rising to 10.7 percent at the end of the projection horizon. The 2.3 percentage point aggregate decline this year is smaller than the aggregate decline of 2.7 percentage points last year, but comparable to aggregate declines in recent years.”