On June 24, the Federal Reserve and Reuters reported that the Fed stated, "The banks tested this year have sufficient capital to withstand a severe recession."
The test was based on a scenario where the unemployment rate could rise to 10%, commercial real estate prices could fall by 39%, and home prices could drop by 30%.
The Fed explained that despite these shocks, the banks met the minimum Common Equity Tier 1 (CET1) capital requirements. The overall CET1 ratio for the banks decreased from 12.8% in the fourth quarter of last year to a low of 11.2% during the crisis scenario, a decline of just 1.6 percentage points.
The anticipated loan losses for the banks were estimated to exceed $708 billion, with credit card loan losses accounting for about $200 billion, followed by approximately $160 billion in commercial and industrial loan losses, and around $75 billion in commercial real estate loan losses.
The Fed noted that the results would not immediately change the capital regulations for large banks.
Michelle Bowman, the Fed's Vice Chair for Supervision, stated, "These results demonstrate the strength of the banking system," adding that public feedback in the process of enhancing the transparency and accountability of stress tests would aid in improving the system and building trust.
* This article has been translated by AI.
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